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

Okay, very good morning. I hope everyone had a great weekend. Monday, 16th of September. Obviously by now you've probably heard of the big news over the weekend and the market reaction last night when electronic trade got underway on Globex, where we saw WTI and Brent spike biggest intraday moves ever. I think an initial open when I was watching it was about 15 and 20% respectively at the initial opening price. So of course gonna have a look what exactly happened, the roundup of the attack on the Saudi Aramco infrastructure in Saudi Arabia, how has that impacted markets this morning. And then obviously Monday morning we've got to discuss not only that, but what's on the agenda for the week ahead. We've already had some interesting Chinese data, which was weak overnight, uh, further kind of accelerating the economic downturn apparent in their economy, uh, but for the moment continuing to increase their expectations, remaining high that the Chinese authorities will need to step in and counteract that. And then throughout the week, we've got some obviously interesting events. The headline of course, other than this developing geopolitical renewed risk on the table, is that of the FOMC interest rate decision. That of course is coming on Wednesday night. We'll be covering that, the team and I, on YouTube Live for that event. So do join us, we'll kick that off at 6:30 ahead of the event at 7. And of course, given we're in September, there is updated dot plots. It's the Summary of Economic Projections with the press conference and, uh, definitely going to be an important event for markets. That's on Wednesday. We've also got the Bank of England on Thursday, but ultimately not really going to see too much from them. Not a great deal that they can do without any clarity around particularly this unknown quantity, which is the deadline as it remains at the moment, even though law has been changed on October 31st. As we're going to discuss, Boris Johnson's still threatening that he will not adhere to that request and he will not ask for an extension. He is meeting with Jean-Claude Juncker today. So we'll circle back to the calendar at the end and have a bit of a recap before I hand you over to Sam, but let's get straight into the charts this morning and cross-asset class impact to the situation that's happened in Saudi Arabia. So let me just quickly show you the oil chart and some of the others first, and then we'll go through all of the headlines. So So this is the big spike up we had. WTI crude futures last night. So obviously this was Friday's closing price, closed at $54.82. We reopened at $61.48. So, you know, decent $7 bounce, high volatility at the open. Obviously, this happened actually on Saturday. So everyone was informed about the news, knew it was going to be a bullish signal. Sam and I were actually talking though first thing this morning, and obviously we were, we were over, both of us, in Tuscany at the weekend, so unfortunately we weren't able to really do too much given the fact we got back quite late last night. But what we thought would be particularly interesting was a lot of people might as well got quite badly hurt, you know, just blindly getting long at the open almost too late. And you can see here, I know Sam will go over the technicals with a lot more detail, but we came up to a real quite clear technical point coming up to the kind of June low of 2018, the high point of resistance we had in May from earlier this year. And I'd just be, you know, the high volume because it would have drawn a lot of attention, but also potentially going into a little bit of a liquid situation. It was a Japanese holiday respect for the aged day overnight. So their markets closed, which might have well just exacerbated conditions and made it a little bit more tricky. So it's not always quite as one-dimensional, uh, as just trying to just jump in and get long. Because as you can see from the initial high point that we've seen overnight— well, let's go back to the 60-minute— we actually got an intraday high at 6335 from an opening price of 6148. So you've got a decent kind of $2 rally before then, you know, quite a decent pullback. And we're pressing now down to a $59 handle, which would be, you know, a good $3, $4.50 reversal from that initial intraday high seen overnight. So certainly, you know, you need to be, I guess, quite agile overnight if you're looking to take on those, those types of situations. Impact across asset classes, though, because this does heighten obviously geopolitical risk. In the Middle East and in the Persian Gulf, given any type of military response, or at least threat of coming out of the US in particular, and Donald Trump. And so typical flight-to-quality moves. Gold bottom— excuse me— gold bottom right capping up slightly. Gold top right doing the same. Excuse me. As T-notes bottom right gapping up, gold doing the same. Gold remaining up about $10 at this point. Equities then gapping lower and FX markets pretty unmoved in response to how much the other assets did move in the overnight session. However, one thing to be clear of here, given oil already kind of giving back some of that initial move, the equity markets also in kind reversing from the initial pressure seen overnight. And likewise in the 10-year and gold. So it's not like a runaway move. Definitely it was an overnight trade if you were part of it. I think now looking for a continuation of that, you can see is already— it's kind of run its course almost. In terms of the DAX, we've already got above the opening high point in the futures. Now potentially a gap fill would take us up to around the pivot if we were to get up there today. So quick look at the headlines. What exactly did happen? Well, oil jumps most on record after attack cuts Saudi Arabian supplies. So it was the biggest ever intraday jump after— as you can see here, it's going to impact about 5.7 million barrels. Now, this is a country which only produces just under 10 million, so talking about half of the country's supply. And this is, of course, the third largest oil producer in the world after America and Russia. And it does mean that at 5.7 million barrels per day being impacted, that's about 5% of global crude. So when you put it in those terms, hence the reason why you get such an aggressive reaction in markets at the recommencement of trade overnight. It happened on Saturday after 10 unmanned aerial vehicles struck the world's biggest crude process processing facility. That one singular facility accounts for 50% of all Saudi supply, in fact. And also there were attacks on the kingdom's second biggest oil field. Also, just seen headlines a few moments ago, the Houthi military spokesman has said Saudi Aramco plants are still a target and is warning both companies and foreigners that Saudi should stop their aggression and blockade on Yemen. And obviously This, of course, is that ongoing proxy war from the Houthi-backed Iranian rebels via Yemen and Syria and so on, uh, that's causing this friction to escalate at the moment. Now, a few other points that we can go through. Going to this chart here, how actually bad is this disruption? Well, here's a graphic that might make a little bit more sense in terms of historical precedence. For oil markets, it's the single worst sudden disruption ever at 5.7 million, surpassing the loss of Kuwaiti and Iraqi petroleum, which would be going back, um, all the way. You can see here the Iranian Revolution was back in the late '70s, the Israeli War and the oil embargo in the early '70s, then going back to the invasion, uh, the Iraqi invasion of Kuwait in the '90s, in terms of that real specific region as well. So Yeah, definitely a really surprising event. Obviously we'd seen threats of, uh, and gradual escalation to the point of where a drone was shot down, US military drone, obviously in contested waters, capturing of vessels in the Straits of Hormuz. But I don't think anyone was really quite expecting this quite dramatic event to unfold in such a way like this. Importantly, Saudi Arabia According to people familiar with the matter, because importantly Saudi Arabia have not made official comment as yet, they've said they can restart a significant volume of the halted oil production within days but needs weeks to restore full output capacity. So I do think that's an important point. Obviously, how quickly can they get these facilities back online is going to be quite key. Now, from a US perspective. Obviously Donald Trump, and obviously interesting from a timing point of view, he was tweeting, I think it was about 7 minutes before the futures reopening last night. So definitely looking, he knows oil is going to spike higher. Oil prices is obviously counterintuitive for what his political narrative is, which is he wants to control that price at the pump for the consumer, particularly going into an election year in 2020. So he came out and first of all talking about, you know, pinning responsibility. Well, he said Saudi Arabia oil supply was attacked, there is reason to believe that we know the culprit, and importantly he said we are locked and loaded depending on verification but are waiting to hear from the Kingdom as to who they believe was the cause of this attack, we're under what terms we would then proceed That was from the president, but if you check out what Secretary Pompeo said, he said Tehran is behind nearly 100 attacks on Saudi Arabia while President Rouhani and Zarif pretend to engage in diplomacy. Amid all the talks for de-escalation, Iran has now launched an unprecedented attack on the world's energy supply. There is no evidence the attacks came from Yemen. So absolutely, there is no doubt in his mind who this has come from. And if anything, Trump has been a little bit more diplomatic this time, despite using the words locked and loaded. So again, this helps fuel that initial move and reaction. Interesting reports though this morning were kind of saying Trump's in a little bit of a lose-lose situation here, because if he goes into some sort of military engagement, that's going to be very costly, could be quite damaging as well for popularity. Going into this election period to come over the next 18 months or so. But if he doesn't engage, does that mean Tehran will think that they've got impunity and they can just continue to cause such disruptions, which is going to threaten that oil prices can continue to go higher? So that's why I think Donald's been a little bit more delicate here with how to respond, letting someone else within his administration take care of the business of delivering that line so it doesn't come from him. Allowing himself more optionality to respond in either way, because I don't think they've quite worked it out as yet. That would be my take on that. This is one of the other things that, um, the US said was that Trump has authorized the SPR, the Special Petroleum Reserve, oil release after Saudi supply disruption. Now, the SPR has been tapped in the First Gulf War, Hurricane Katrina, and the Libyan crisis. And the reserve drawdown may help counter potential oil price spikes. So what Donald said was, based on the attack, which may have impacts on oil prices, he's authorized release of the Strategic Petroleum Reserve if needed in a to-be-determined amount sufficient to keep the markets well supplied. So again, he knows he needs to counteract any particular ongoing continuous spike in prices. Now, some of you may have heard of the SPR, some of you may have not, but a couple of details here, so a bit of context so you're aware for future purposes. The SPR is the US government's complex of 4 sites of basically deep underground storage caverns created in salt domes along the Texan and Louisiana Gulf Coastline. Now, the caverns have a capacity for 727 million barrels and store emergency supplies of crude oil owned by the US government. Now, at the current level of 695 million barrels— so there is some spare capacity there— the SPR holds the equivalent of 143 days of import protection. So obviously they can release some of this in the situations as we've seen here in the Gulf War, or anomalies in the weather which can have large impacts in production in certain regions. But then they can kind of replenish those diminished stocks in those situations. So as far as we're aware, that hasn't happened as yet, but the US have committed to the fact that they're willing to do that. Possibly not needed because you actually look at the price of oil this morning, we're already backing down. We've just had a flirt with $59 as I've been speaking. So what was a sharp gain in WTI crude in dollar terms of kind of $10 is now just $4 at this point. Okay, so, you know, that was the big headline. Obviously, the reaction in other markets— equities, uh, airliners down this morning— implications of then unforeseen spikes in oil prices. However, oil firms getting the benefit of that in a very short-termist kind of way. But overall, a lot of the move already being retraced for the time being. Okay, quick look at some of the other things that are happening overnight. As I mentioned, Chinese data was weak. It continues that pattern of really reflecting the weakness ongoing in their economy and the real necessity that they have now for further action from the central bank, likely to come in adjustments to policy in a variety of different forms, as we've already seen with cuts to the triple R, uh, within the last 2 weeks or so, but also from fiscal measures, of course, from the government to look to prop up the economy, because industrial output rose 4.4% from a year earlier in August. That is in fact the lowest for a single month since 2002. While retail sales came in below expectations. Let me just flick over to this chart here. So as you can see, the blue line, retail sales below expectations, and that industrial output figure coming in the worst in about 17 years for a single month print, even though it was still positive, because again, that number tends to track at an average of around 6%. And finally, fixed asset investment slowed to 5.5%, first slowdown we've seen in 8 months, I believe, in that figure. So again, China struggling certainly continues to warrant further global central bank interventions, as we've discussed in recent weeks. Moving the, moving the geographic needle over to the UK, this is the latest. Of course, over the weekend, Johnson talks up a Brexit deal as he heads for Juncker meeting. Again, this is all political management, if you like, of what his intentions are. So he was at the weekend saying that he's working, and him and his team, absolutely flat out to try and get a deal in time for that October 17th, 18th European summit. So that then, if you go by the existing legislation passed in Parliament in the last week and a half, would mean that if he has not struck a deal, then by October 19th he needs to go to Europe to request an extension to January 31st beyond the current deadline that he himself imposed of October 31st. So he's kind of suggesting then that, look, he's working flat out. So that kind of addresses that notion, as we saw with the resignation of Amber Rudd, that basically all preparation is being done for no deal and nothing's done for negotiation. So he's looking to try and facilitate the fact that getting the hard Brexiteers on board, of course, that better to get a deal over the line than to delay again. And also, of course, it works with the management of public perception, him showing that he's trying to do all that he can to deliver the will of the people on balance. And this comes, of course, with your— one of your opposition threats not being Labour but Liberal Democrats who've come out at the weekend and said they've pledged to revoke Article 50 if they win the election. So no more "let's have a second people's vote," which they've been pursuing for the last 3 years. The Liberal Democrats have now upped the ante and they're saying, "We're going to cancel Brexit." Now, what's the strategy behind this? Well, you know, I think the strategy is quite clear. Obviously the vote to leave was, what, a 4% or so margin. So can you capture and make more ground from just having these 18 MPs in Parliament that you have at the moment to something more substantial? Not to win, of course, but to be a power in Parliament, as we've seen, to cause disruptions to the status quo like we've seen through the inability for Johnson to govern, as we did with Theresa May, but then also obviously teaming up with other political Remain parties like the Greens and Labour, depending on which way they go with Jeremy Corbyn or not, then this is probably a strong strategy in that respect to capture the absolute opposite side of those who want a full cancellation of the whole deal. So this definitely is an election move from the Liberal Democrats for sure. And as I said before, not a matter of if but when that general election does occur. So Brexit headlines, you can expect a couple today. Johnson and Juncker are meeting later, but is there going to be any type of headway made? Absolutely not. I don't think so. It's whether or not he can get any type of concession over the backstop on the Northern Ireland issue if is the one to look out for, of course. But I don't think that that's going to be forthcoming, not given what we heard from his trip to Dublin only in the last week or so. Um, going back to the calendar then to wrap things up, and then Sam can go over the technicals. So as far as today is concerned, Chinese data already out and a disappointment. Yeah, US New York Empire State Manufacturing, now that is important because you've got Empire today. You've then got, um, US industrial manufacturing production on Tuesday. You've then got US Philly Fed Manufacturing Index on Thursday. So activity, economic data in the US has been particularly interesting. It's been one of the main reasons why the Federal Reserve are going to cut interest rates. I believe the probability is priced at about 79% or so for 25 basis point cut on Wednesday. It's because of the impact that the trade war, uh, the threat, then pessimism growing over a looming recession with the inversion of the yield curve, over the slowdown in activity data. Because as we've seen, consumers have kind of remained relatively robust, at least for the time being. And so we're going to get the latest update throughout the week on that situation. On that US note, the FOMC, obviously key as I mentioned not just the decision or the basis that they're going to cut rates, but how many more times do they commit to at this point in time. Um, actually, on that note, let's just quickly get up the FedWatch tool on CME. For those not familiar with that, the FedWatch tool allows you to see the implied probabilities of interest rate moves defined by the short end of the curve in the federal funds rate futures. So a cut of 25 basis points is currently priced at 84.2%, and it's actually 16% of the market priced for a hold, uh, in the meeting on Wednesday, which is quite interesting given where we were just a few weeks ago, which was a lot of people talking about this idea of 50. That definitely has been put to bed more recently. If we go to the end of the year though, given the fact that we're at 200 to 225 basis points, well, actually the market is priced not just for a cut, uh, on Wednesday but for another subsequent cut before year-end. Uh, they're on balance, the market position for 43.4% that will be in the Fed funds range of 1.5% to 1.75%. The other thing from the UK, aside from the politics, you get latest inflation data, CPI, RPI, PPI on Wednesday. That then setting us up for the Bank of England interest rate decision. The Bank of England will just be a regular one, so no quarterly inflation report. So we'll get the actual announcement on rates, and of course everyone expecting unchanged and unanimous, 9-nil. But we'll get the updated minutes as well from the line-by-line discussions that they had. But of course the uncertainty around Brexit kind of just shackling any really near-term decision from them. Okay, that is it from me. I'm going to hand you over to Sam, let him go over the technicals, and I will wish you a great week ahead. Thanks very much.

Yeah, hi guys, good morning. Uh, we've all had a, uh, good weekend. May as well start off here with, uh, with the oil chart. You see, as I mentioned, getting up to $63.35 there on the, the futures and just resting on $59, uh, the handle for now, which Well, you can see just the importance of, of that whole area, just a little bit below where we're trading. We've already found support initially on that first retest of the 31st of July level, and then just a touch below there, which is currently the low of the day, was the high that we had back on the 10th, so just 6 days ago. As a level goes, line in the sand for the day and the week, pretty good area of support to consider. Of course already down quite heavily and, uh, still, uh, well, heavily from the highest, so still up just over $4, uh, from where we, uh, finished and closed the day on, uh, on Friday. And just bringing in that daily chart, you can just see, uh, the— that high level going back to May last year. And of course that trend line which was choppy, uh, but then we did eventually get that to sort of close through Uh, I'm on about this one starting in May. You can see that we've got that breakthrough, uh, we're just from the high from last year to then the April high, also just finding a bit of support on that now as well. So as an area goes, literally that low of the day is, is pretty important and one to definitely consider. Also looking at, uh, longer charts, bring in the, the S&P, which, uh, gapping lower as many risk assets did. And we're just starting to— we'll put this on a 15-minute before we look daily, I should say. We're just starting to get a trend from the bottom of the day to here, and then we're not far away from that coming in. It's the same, of course, as you'd expect in the Dow Jones as well. Those trend lines here, you can see it's been respected a lot more. So just keep an eye on that, especially if the, the DAX was to come under pressure and break its similar pattern, which you're about to see here now, just from those lows. A bit more choppy, but again, you wouldn't necessarily disregard that for, for the DAX and the Eurostoxx alike, which you can see it just drifting lower. Then it may well lead to a fall down, uh, in US equity. So worth having those trend lines on, uh, if you like, as a line in the sand. Daily chart of the S&P. Obviously, we weren't too far away from the all-time high on the finish on Friday the 13th. Just draw that up. You can see we, uh, well, if we had had a similar day to the Thursday, we probably would have made that. In terms of levels to, to be aware of and of interest, around 2960, certainly, you know, while a fair whack away now, 30 points or so, as a level that the bulls will, will want to defend. You can just see the importance of this whole area historically. And again, I'll be keeping a close watch on that. Below there, obviously we haven't had a proper test of 2945, so that's something I would still have marked up as well. And that all-time high not far away. Another longer-term chart to want to keep an eye on— of course we'll go through this in the, the daily strategy— a weekly strategy, I should say— later on is T-notes. And I'm just going to put this onto a weekly chart here. And just the importance actually of where we hit last week. You can see was the, the previous high on the futures that we had in September 2017. And really, if we just bring up the currency tool just for the percentage, so last week's move, give or take a couple of figures, yeah, 2% So the biggest down move in, in T-Note price since November 2016. Something happened in that month, I can't quite remember. Anyway, worth keeping an eye on this level that we're currently trading at here on T-Notes. Found some good resistance before breaking through there back in July, and we've had a good bounce off that. Well, from the— obviously we'd have gapped higher, but below there, there could well be a bit more room for it to, to fall down. And a couple of decent trend lines as well I'd have on, on the week, which gives it maybe that last bit of support before a bigger move lower, just a bit below where we're trading on that trend line. So that weekly trend here starting on the 25th of March 2019, that week anyway, worth keeping a watch on that. Of course It did gap higher, as did gold and, and silver. Let's have a quick look at this just, uh, on that 60-minute chart. So bringing that in, we briefly got above Friday's high and we're now just knocking around the R1, uh, for the day for, for gold, which has, you know, come up a fair bit from that double top that we had back on the 4th, uh, of September, 26th of August. We broke out that mini range, we tried to get above it a couple of couple of times and couldn't. And for now, the R1 finding quite good support on that. And really, I would say, other than the initial low that we had on the spike higher, the key level here, 1508— I was at 0.8 maybe to the tick, 0708— that would be an area I'd be keeping a close watch on. If things were to, to break down there, you might get support other way. So some important lines in the sand certainly coming into play. Uh, it's not a case for me that I do believe equities are suddenly going to start coming lower just off this, this headline, but we know, as mentioned, there are some important levels in play. And if equities were to recover, I've got to imagine gold here would just be coming under pressure from, from that low as well. Obviously big events happening, obviously the Fed taking center stage on, on Wednesday and and gold price most likely will, uh, actually be higher or lower depending on that. Having a look at, uh, well, we have to look at the euro dollar. You can see— let's remove the pivots, remove the pivots— having a look at, uh, how we're trading going into the week. We see a decent recovery over the last couple of trading sessions. The— we— similar to the pound, wasn't it, in that you make a new low multi-year low, uh, only to then spike all the way higher. And obviously ECB was, uh, the reason for that. Um, and just that high, really, the, the level— or should I say the previous low that we had back on the middle of August, 16th of August— which can't close above that. So line in the sand, there you go. That's, uh, one that I would, would have marked up for that. Again, as we, we come into the Fed, we'll obviously focus a bit more on, on how this chart looks. And you can see if we were to get above this whole zone now, drawing that trend line on, well, 112, 113, and the high in between that, uh, of the 26th of August could become a formality and we get through that. So as an area to defend, so far for the bears, they're in control as we, we got that failed test higher. But certainly that is a good a level as any to, to keep an eye on. In, uh, to the beginning of the week. And of course the Fed later. Bank of England, obviously not expecting too much to go on there, but a decent push higher, 500 ticks higher than that multi-year low that we had around 120 there, which is incredible. And, uh, this wasn't really interested in, in this previous low around the 17th. We also broke through that trend that came in around here, and obviously Friday, really strong push to the upside. Ultimately, it will be Brexit that really drives this price. We've seen on, on big days for the US dollar, it's not really interested whether that be positive or negative on this, this market. So pound against the dollar really being driven by Brexit headlines. So we'll go into some of these levels in a bit more detail and as we do the strategy later, uh, today. Quick look at what the DAX is doing currently. We just had a bit of a— you know, I never made that trend line— bit of a push higher. So we'll keep those trend lines on from those lows, and any chance to fill that gap again— gold, T-notes, and the Bund most likely to come under pressure, and the US to follow the DAX through. Obviously oil as well is on that low of the day, which is such a key level as a line in the sand. So if you keep an eye on that. Longer-term levels of interest in play for euro and T-notes as well, of course, the, the S&P 500. As usual, any questions, let us know in the chat and we'll get back to you throughout the day. Should be a pretty, pretty good week, so looking forward to covering that with you guys. But I speak to you later today. Hope you'll have a good trading day and even better Trading Week.