The Trading Week Ahead: 16th - 20th December 2019

Good morning, Anthony here, Monday the 16th of December. Hope everyone had a great weekend, and thank you very much for everyone who joined us on election night. I hope it was— the coverage useful. And yet we're all recovered now, ready to go for a new week, and as per the usual process process. I'll talk you through the main things I'm looking at on the calendar for the week ahead. If you do need this calendar, it is available on my Twitter account. Post it every Sunday, a combination of not just economic data but all the main speaker events, any political events like with the UK, for example, what's happening in Parliament this week. This is your, your one-stop kind of shop. A quick look though, first of all, overview of the charts, how we set up this morning. And yeah, quite, quite quiet. A few things to update you on the trade negotiation side between the US and China. There's been some data from China and Japan, key data coming out this morning, so I'll try and keep this as brief as possible because it's the preliminary PMI numbers which are influential and market-moving, and they'll be coming out shortly. We've also got some updates, of course, on what to look out for next from Boris Johnson having secured that resounding victory at the end of last week. So overall, pound, a little bit of outperformance first thing this morning, but it's already kind of given up that bid tone initially when Europe came in. So trading just sub-pivot at the top chart in the futures at the moment. Euro-dollar marginally positive. So both pairs up slightly with the Dixie down about 0.2%. Um, gold pretty much unchanged, trading at $1,481. Index futures mildly positive. Don't forget as well, we managed to avert, as largely expected, those Chinese tariffs coming in, at least the new ones from the US on China on Sunday. And then the US 10-year just giving back a little bit, perhaps some of that risk premium built in in anticipation of potential threats that that tariff being implemented could have had on markets. So just seeing a little bit of unwinding of that morning. So first things first, let's jump through and look at some of the headlines. And obviously aftermath now, a lot of the UK press filled with pages on what next now for UK Prime Minister Boris Johnson. And as far as the, the schedule is concerned for this week, today he's going to be looking to appoint some new members to his cabinet. This is mainly really procedural. This isn't going to have any immediate impact or impact on the British pound. The culture secretary, the Welsh secretary, and the environment minister all need to be replaced for a variety of different reasons. Zac Goldsmith, I think his name, the Richmond MP, needs to be replaced because he lost his seat, for example. A bigger reshuffle of cabinet members is going to be conducted after the January 31st kind of initial Brexit deadline is what the press have been speculating. This then leads us on into bringing back the Withdrawal Agreement Bill, otherwise known as WAB, and he'll look to rush that through as quickly as possible now he's got this big majority in Parliament so that he can deliver this kind of Brexit in time for that self-imposed deadline. This does mean then that in terms of the formalities He does need to put forward his new agenda, where the Queen's speech— basically, she needs to do a bit of a top-up to what she delivered in October, putting forward the new government's agenda. And that's likely to happen on Thursday. Quick overview then of a couple of graphics. This, first of all, really just putting into context the size of Johnson's win last week. As you can see here, it's the biggest majority that we've had in UK Parliament ever since Tony Blair smashed it in '97 and 2001. Uh, going back to that though, you've got to go to the Margaret Thatcher years of kind of '87, the last time the Conservative Party, uh, specifically had such a large size majority. When she had it, it was around 100. Obviously his now around 80, but a significant break from what had been the pattern of really the last previous 3 elections, which would be incredibly indecisive. Um, the timeline now is quite key, and, and here's one I, I shared on the night. This is, uh, by way of Danske Bank analysts. And so first things we've got now is the Brexit kind of day, if you like, and this being the lapse of Article 50 and moving into the implementation phase or transition, whichever way you want to coin it. The transition period takes us up until the 31st of December of 2020. However, as part of the already pre-written agreements, the UK government would have the ability to extend the transition period by 1 to 2 years. And putting my neck on the line right now, Monday, 16th of December, Boris Johnson will not deliver Brexit by the end of the transition of 2020. What basically he has said is that he has ruled out extending the transition period beyond 31st of December 2020. What I'm saying is he will absolutely extend the transition period. So as he's done before, he will put some kind of spin on it but a trade deal being locked in, secured with Europe by the end of this time next year, no chance is my view. And so, you know, as much as there's going to be ebb and flow in the price of the pound along that 12-month journey, um, the, the complexity— I mean, I was looking at the weekend reading of what needs to be done. I mean, in terms of an actual trade deal, I mean, it's terrific. It's, it's so complicated, so arduous, so lengthy, uh, an extension is almost a foregone conclusion in my mind. But I guess at the moment he's got to ride the wave of political triumph at the weekend. Of course, given now the Red Wall has turned blue, he's been promising large-scale reinvestment into the North, and obviously that's a strategic play. I would do the You've got to appease now the people that for the first time, really in a long time, have now changed their political backing and allegiance to your party. And so he needs to lock that in. Other things, this is now what happens next for the Labour Party. Jeremy Corbyn obviously has said he wouldn't run in another election and that he'll step down as and when a new Labour leader is appointed. Pointed. So the likelihood is that's not going to happen, I don't think, until probably a, a good while yet, a number of months. I think I read this morning it might not be until May of next year. But who's the favorite? And you'll remember on the actual night itself we were talking a lot about Keir Starmer was the outright favorite. He's actually dropped to third now according to the bookies. Um, the, the favorites at the moment Well, actually favorite at the moment is Rebecca Long-Bailey, quite an out front runner at the moment at 27%. She is the shadow business secretary, and if you remember, she was the person they kind of rolled out in replacement of Corbyn in any of the final televised debates as the main Labour representative. So she's pretty well known within the party, fairly senior. She is aligned though with the left and Corbyn's more social policies. The other person that's getting a lot of traffic in terms of the betting market is Lisa Nandy. Now I think she's the MP for Wigan. She hasn't yet declared that she would be up for running, although she has intimated she could be interested. She is very different. She's a soft left candidate. She actually resigned from the shadow cabinet in 2016 because of the fact she wasn't happy with Corbyn's policies. So you've got quite a big difference there in those two front-running candidates at the moment. One very much in a similar ilk to Corbyn, and the other much more centre-left in the— what could argue in the old— I say the old— the New Labour format. Whether or not who will get chosen, I think it's really too early to say. I do think though, my initial thoughts upon seeing this reflected in the betting market, I think if Rebecca Long-Bailey gets picked, I don't really see too much difference then from what's happened with a catastrophic failure of not only, yeah, obviously events like the inability to deal with antisemitism, but also the, uh, the the social policies that Corbyn was trying to follow obviously have not worked, and the working class, particularly in the North East, are dissatisfied. And so perhaps then a move towards someone more soft left rather than left could be the order of the day. But, you know, who am I to say? But that's how I'd see probably a better route for Labour if they're going to form any type of more credible opposition, given that the Labour's performance at the end of last week, I think it was the worst since the 1930s. Couldn't be any worse as far as their performance. All right, off the election and Brexit, let's talk about the biggest story, of course, that dominates global financial markets still, and that is the US trade negotiations. Robert Lighthizer, the trade representative, said that Phase 1 trade deal is, quote, totally done and will double exports to China in 2 years. So let me just give you the tweets from the man himself, Donald Trump. He said they've agreed to very large Phase 1 deal with China. They've agreed to many structural changes and massive purchases of agricultural products, energy, and manufactured goods, plus much more. 25% tariffs will remain as is. And the 7.5% put on of much of the remainder, the penalty tariff set for December 15th will not be charged because of the fact that we've made this deal. So that's the delay of which we were kind of expecting last week. He finishes, we will begin negotiations on Phase 2 deal immediately rather than waiting for the 2020 election. However, Robert Lighthizer then came out and said No, no, no, no, no, no, no, there's no date set yet for US-China phase 2 talks. We need to wait and see the implementation and the fact that China does come, come through with its commitment. So he basically has just said the president's wrong. I think I wouldn't read too much into this. I don't think this is market moving. This is Trump just getting a little bit excited, and obviously the PR that comes with kind of leveraging the fact that he wants to make this look like he's in control and he's cracked a deal. And so I don't really think too much to it. I think Lighthizer's comment is absolutely prudent, and I think this is the right approach and the one that will be chosen. And that is that, look, let's not talk phase 2 yet. Let's just ensure that this massive amount of, as Trump puts it, purchasing of agricultural product, energy, and manufactured goods from China comes through, then we'll start talking turkey, if you excuse the pun. Having a look elsewhere, this was a headline that came out over the weekend, and I did think that this was quite interesting. And certainly I think going into 2020, you know, this, this kind of protectionist stance from the US spilling out into other areas across the globe. And here what Bloomberg were reporting was that China the ambassador to Germany has threatened Berlin with retaliation, basically, if it should ban Huawei's 5G. The pending German legislation would impose a de facto ban. And so the particular retaliation that China were talking about was as to hit Germany where it hurts, as we know, is on the auto manufacturers, who of course China is a huge market for the likes of BMW, Daimler, Volkswagen, and so on. So quite interesting here. I mean, the last thing that Germany needs, having had issues with their domestic politics, having had issues with the risk of a no-deal Brexit, issues with the US targeting these auto manufacturers and other exporters, now China getting involved, you know, this could, could spell disaster going into a country which is been sitting on the, you know, in the recessionary territory. Okay, a few other headlines to, to quickly go through. And as I said, I want to get things wrapped up for the PMI from Germany coming out shortly. Just while I say that, the French number has already come out. The French manufacturing PMI, 50.3 against expected 51.5, so weaker than expected. Services, 52.4 4, a touch above expectations of 52.1. So quite weak on the manufacturing, slight beat on services for the French PMI. And the German figure coming up in about 15 minutes. Having a look, final headlines here. I did see a research note out of Bank of America this morning. They were basically saying that as Brexit and trade war risks recede, and with the Federal Reserve and ECB still adding liquidity, they are quite bullish over the first half of 2020 US equities. I think their call was for the S&P to hit— yeah, this is it. Bank of America are calling S&P to reach 3,333 by March 3rd, which would be a 5% rise from Friday's close. So getting, you know, as per the target here, pretty bullish going forward. Uh, so, so something to be aware of. Data-wise, some other things at the, the weekend. Growth in China's industrial retail sectors beat expectations in November. That was according to data that came out overnight. However, not so pretty in Japan, as Japan's factory activity extended its fall in December as a prolonged decline in output and new orders threatened to tip the economy into contraction in the current quarter. Their factory activity shrunk for an 8th month in a row. So things, you know, not looking good in Japan, but hence the reason why Shinzo Abe, the PM, a few weeks ago unveiled another substantial fiscal stimulus to try and prop up the economy, given the relatively few options that the Bank of Japan has left. On that note, back to the calendar. The Bank of Japan do have their interest rate decision on Thursday, uh, that comes alongside the Bank of England. Uh, the Bank of England, uh, one thing I would say with that, not expecting a great deal of action. I would say, uh, they can't really make too much in the way of decisions given yet to see a definitive conclusion of at least the, the WABE getting approved through Parliament so we can move into this transition phase with Brexit. So very much a wait-and-see situation there for the BoE. Otherwise, in terms of the calendar highlights for, for this week, the PMI data coming out of Europe right now is very important. Particularly I'm interested in the German figure coming out in about 10 minutes. UK manufacturing service PMIs are coming out a bit later this morning. Then you've got the US New York Empire State Manufacturing later as well. Tuesday highlights US industrial manufacturing production. A couple of Fed speakers as well— Williams, Kaplan, Rosengren, and Isabey's Wren— all speaking on Tuesday. Wednesday, German IFO business climate. Again, as I've mentioned, with that Chinese headline targeting, or threatening at least, German trade, that in combination with the German PMIs and then IFO, quite a lot of good insight as to the current and future expectations for that economy, which obviously is key in the eurozone. And then going back to Friday, on Friday you get the GDP. These are final readings, so no great shakes to speak of really. Q3 is pretty much wrapped up, that's old data now given the fact that we're almost in January now. But we get the final GDP readings from both the UK and the US. I do also think it's called Drupal witching as as well. But obviously, as we get towards the end of the week, that's pretty much it. I'd say going into Monday the 23rd and then Christmas Eve, things will be very quiet, barring anything unexpected. So this week, really, I would expect volumes potentially to start tailing off even towards the end of the week, given the fact that those GDPs are finals, so not going to be particularly market-moving in that respect. Okay. That's it for me. I will post, if Sam is still on, the German data as and when it comes out, but I reckon he could wrap it up in time. Give him a bit of a target. You got 10 minutes, Sam. All right, thanks guys, see you later.

10 minutes, I got this. Well, this is actually the, the last full trading week of the decade, so strap yourself in, it's gonna be a good one. Have a look over the pound, you can see that gap of obviously still, still big. And with the, with the market as it is, of course that longer time frame will be useful just to, to mark up any of those potential points of where it could retrace to, and to then find some support. And, and this is a level we were talking about, uh, in the early hours of Friday, uh, the 3rd of May high. And I mean, you can't get much perfect, much more perfect than that, to the tick. And and the bounce was, was fantastic, uh, below there. So below the, the low that we had back on those last couple of days, I'd argue the 7th of May is worth having on, on the futures around 133 to the handle. And then of course just below that you are looking at those levels that we had back from, uh, the, the 12th last week. Let's get the pivots on as they'll be a bit closer, uh, today than that where they were last week. But you can see If we put this now 15-minute, uh, we'll see quite far away from that S1 area, but that does mark up with that level from May as well. So some key points of support below where we're trading. I'll be keeping an eye on all of those. Above, uh, the high of the, the day, you can, you can see is a pretty good area of resistance from the early hours of Friday, uh, 134.61. And then above that, I would have 87 marked up as well. No real trend line as such in play from those last couple of days, so keep it quite, I'd say, horizontal. But to the downside, you can see certainly from Friday's low, and you see how many times we tested that area, we have just now made this third test. 1, 2, 3. So really keep a watch on that. Also 134 handle, also the resistance from 3 PM on Friday. So actually quite technical support the pound at the moment. Let maybe the market tell you what's really going on. Euro filled its gap pretty quick and actually came down quite aggressively on Friday. Quite a big area of support almost hit as well. Let's just bring this in here. The, the low that we had on the, the 12th and the 13th, you could argue that's the, the 10th high, and then also the, the 5th. Really big zone that I'll be keeping a watch on. You can see the buyers came in late on that session, we have driven price higher to the upside. Keeping an eye on 1.1230, I would say, uh, the low that we had on the 13th, um, in that morning, uh, we're keeping a watch on that to see how we, uh, can come into play. Really, I'd be focusing on that as the, as the range. Also, I guess if we were to have a stronger move at any point, and obviously maybe this data could lead to something, uh, this potential trend line, which would at the moment might mark up with the low that we had from overnight yesterday as well. Therefore, for the euro, gold, it did gap lower, filled it very, very quickly, and since then has pushed on. You can argue everything would seem fine— Brexit's done, trade war, trade talks are going well— and well, gold's been pushing higher here. So we're not out the woods just yet. Quite a key level I would have up, you know, we despite this is on, on the 12th, but 1483.5, I'd still have that as a level of interest to have on. And certainly you can now put this on the 240. Any strong move to the downside, you've got to be aware of these, these trend lines depending where you draw them. You know, if you go from the, the first two points, you can see we've had a few goes really trying to spike through, most notably here, there, there, three times, but every time it's been left with a rejection. And that low that we had in the early hours post the Brexit, or the general election I should say. You see, we did come back down to test that. So longer term for the week, and of course the year, that would be very, very key. And looking at this on the 240 as well, those highs that we had a couple of times last week remain very significant, 1487.6. So for, for gold I think longer, bigger moves, those would be the areas that I'd be focusing on, above the resistance horizontal or below that support trend line. S&P, well, just going higher and higher and higher. My, my Dow 30,000 hat has arrived, so I'll be bringing that into the office soon because it seems like nothing wants to stop this market just yet. A move lower only found support on some levels from Thursday, and we've driven higher, gapped as well. A double top from Friday around 31.89. It's the R1 today. You're keeping a watch on that because if that goes, 3,200 could well become a bit of a formality. Below, obviously mentioned the S1, you've got before that 31.70. Would argue 31.53 is probably the most important support point, was the high from the 6th, high from the 12th, and then we came back to find support once that had broken through. With the, the trend line from those lows, it still had that on starting here on the— let's move my calendar, uh, Canada chart— on the 3rd, came up there, lovely tests of those, and would be having that on still. You can see there the low of the 10th and almost low of the 12th also come into play in an area that would mark up with S1. And that's how simple I would really keep it. Those would be the points that I would focus on there for the S&P. I'm going to quickly look over at the other charts, how we're trading. DAX relatively quiet, not doing too much. Gapped a bit on the weekend, uh, obviously got a bit of resistance just above where we're trading from Friday. And then I would argue, uh, this lower point near where we closed Friday is key as well. And keep a watch on that for a bit of a guide. If the highs are to go, that horizontal line, S&P on that R1 and double top, you'd imagine would have a good chance of doing so. Oil starting the day strong, but just on a resistance point now, 6012 resistance that we found on Friday. And having a look at this on the 240, much like equities, you can see has just been drifting higher over the last few days and actually trading at levels we haven't seen for a while. So just moving that to a smaller chart, 6150 remains a key point. And having a look at this on the daily chart, well, you can see not far away from those levels that we saw from the incident in end of September, middle of September with Saudi. So keep a watch on oil. Literally where we're trading now should be an interesting battle between the bulls and the bears to begin the Monday morning. Relatively quiet out there, but of course you've got that data approaching in a couple of minutes. So I'll get off the mic and we'll put the data release into the chat as well. But any questions, please do let us know. I hope you'll have a good trading day and even better week ahead.