The Trading Week Ahead: 1st-5th April 2019

Okay, good morning, Monday, 1st of April. Hope everyone had a great weekend. Uh, going to do the usual kind of look ahead for a Monday for the entire week. So as you can see, I've got the, the calendar, main risk events I'm going to talk about now for the next kind of 20 minutes or so, and then I'll hand you over to Sam North, and he can talk you through the charts in a little bit more detail from a technical perspective and some trade setups essentially he's got his eye on for today and the week ahead. Um, so starting with Monday, let's get straight into it. And as you can see here, in terms of the actual number of releases, actually Monday is quite a busy day. I mean, usually The kind of a normal trading week usually has like a kind of peak and trough where typically the middle of the week is the most busy for scheduled events, but this week a little bit unique. And kicking things off, we've actually had some Chinese data already released on Saturday night, which meant that there's been a bit of a reaction overnight in Asian equities as they've reopened Actually, I believe Chinese equities now trading at their best level in one year, if you can believe it or not, compared to where we were. On that point, let me just show you these two graphics then while we're talking of China. And this is Chinese, Chinese factory gauge rebounds as business confidence improves. Importantly, manufacturing PMI exceeding all estimates as orders recover and new export orders increase to their highest level. In 6 months. So, you know, what this looks like graphically is this. You can see here the blue line is non-manufacturing, the white line is probably one of the most important ones, new export orders as well, given the severity of the dip that was seen in the second half of 2018 amid the kind of global market sell-off about recessionary fears on policy tightening and an escalating trade war. But Interestingly, here on the far right of this, this chart is the quite sharp increase here back above 50. And remember, this is PMI data, so 50 is the key kind of line in the sand between it being in, in expansion or contraction. And after several months of deterioration, we've now bounced back quite firmly. Services is already kind of outperforming the manufacturing side, but it's the The latter, of course, of which we look at most intently when it comes to an export-led nation like China, of course. Excuse me. Then looking at new export orders, obviously quite an aggressive pullback after that, that multi-year low that we printed last time round. One thing I would say, slight caveat with this, although the market has received it as a net positive, and as you can see, if we're looking at the the index futures this morning, the S&P's kind of punched higher. We've got a gap up and we've held a lot of those gains in the European, in the DAX future. You can see here in the center left. One word of warning with this is the head of the People's Bank of China has come out and said that, you know, you shouldn't read too much into this because it could partly be a byproduct of the seasonality of the Lunar New Year, which impeded the previous month's data. And sometimes then there's a bit of a pent-up degree of orders which sees quite a violent bounce back in the following month of March, which the data was. So nonetheless, it is positive. And I think actually it's positive because if you think about what was at the heart of the, the kind of panic that saw the big global sell-off in Q4 of 2018, the kind of Chinese economic slowdown was very intrinsic of that, you know, kind of fear and this, this trade war escalation with the ever heightening tariffs that were happening. But the tariffs, if anything, as we'll see for some other news, have been put on ice as talks resume in Washington. And actually, having spent— the Trade Secretary and the Treasury Secretary in the US were over in Beijing last week. They do invite now their Chinese counterparts to come back. I believe it's from Wednesday onwards to continue talks. Now, on that point, talking of China, well, this is the latest, which again fits in with this more positive developments, is that China will continue to suspend extra tariffs on US vehicles and auto parts. And this comes after the US did something similar because back in December, and China also said it was— would suspend additional 25% tariffs on US-made vehicles and auto parts for 3 months. And in effect, that's been rolled over again. Chinese officials saying that's to help facilitate this idea of the positive mood around these trade talks that are ongoing for the moment. Um, charts I will leave Sam to look at in more detail, but one quickly I just wanted to look at was the S&P. So as you can see here on the back of the, the Chinese data story, it has proved a positive point. And you can see here US futures from where we closed on Friday already trading up about 16 points higher. If we start looking at a daily continuation, well, we're coming up again to quite an interesting technical point of resistance which was tested twice going back on the 21st, 22nd of March, and that's that 65 level. And you can see here, really, if I just put an arrow on here just to show you what I'm looking at, it's this area that's quite key, and then these areas here where we are at the moment. So kind of just highlighting the, the importance of that, likely to be tested, I would say, as close as today. A break above there does technically open up some room to the upside. But as we're going to see, there's a lot more US data coming out this afternoon which could be quite pivotal whether or not that does actually materialize. Okay, so just going back to the, the calendar for Monday, that's the kind of Chinese update, if you like, and why the markets have got a relative risk-on mood this morning. If I take that further through back to the charts, the US 10-year bottom right is down about 9.5 ticks and near the S2. So definitely being reflected in risk appetite because gold also has moved lower since the European open and we've broken through that Asia-Pacific low. So we're down about $4. And the other factor which is, you know, this will undoubtedly help at least in the short term, is crude oil. So WTI crude is up about 40 cents, trading at $65. $56. Again, here technically I think now it gets quite interesting for oil because the things that I've been discussing fundamentally have all kind of been erring on the side of potential bullish factors, being though— being, excuse me, being restricted by the technical levels at around this 16.50% fib retracement of that Q4 sell-off. We now seemingly have managed to get our heads above there and quite interested in these coming days just to see whether we've got some appetite now to unleash a bit of upside, particularly if these trade talks continue to progress in a positive way. Because the other thing I'm looking at is this, and there's a couple of headline stories. This is on Reuters this morning talking about the idea that oil prices have pushed higher, referring to the movement this morning as supply worries drive gains. We've just mentioned China on the demand side. What about the supply side? There's a few things I wanted to point out. This was one. US production has steadied. I'm not sure whether you caught this on Friday or not, but the US government reported on Friday that domestic output— and obviously, well, who is now the world's biggest producer of crude oil— edged down to 11.9 million barrels per day in January. Remember, we were tracking up at record levels of 12.1 1. So the level of production there in the US is going down. There's also a lot of production supply side being questioned because of the sanctions on Venezuela and Iran. So again, net positive for prices. And US energy firms last week reduced the number of oil rigs operating to their lowest level in nearly a year, cutting the most rigs in a quarter in 3 years according to Baker Hughes rig count that we get on a late Friday afternoon. So there definitely are a couple of things here that are becoming quite interesting. And from an underlying market positioning point of view, hedge funds and other money managers have raised their net long US crude futures and options positions to just shy of a quarter million in the week to March 26th. So there's definitely a lot of supply-side kind of risks. The demand-side pickup now, that maybe global growth concerns— again, as I've been saying last week, I'm not that fazed by a lot of this focus on the inversion of the yield curve. Actually, I think, you know, for the medium-term growth prospects, I think will be okay. And as I'm going to discuss, there are some key manufacturing US and German data points which I'll be watching with great interest as we go through this week because they could well define whether or not we have indeed stabilized on that demand side for crude. But yeah, certainly something to bear in mind. Back to the calendar again, just to finish off Monday because it is quite a busy day. I'm going to leave Brexit for one second because I'll have a section for that specifically because obviously today is the indicative voting round 2, if you like, from what failed to find a majority alternative to the government's plan last week. But the other things for today, you've got US retail sales, you've got EU flash CPI, you've got US ISM manufacturing PMI. And actually sticking with the US, just to round a couple things off, US data this week is, is pretty consistent of a top-tier nature. So as I said, you've got retail sales and ISM Manufacturing PMI today, the latter of which I definitely would keep an eye on the employment, employment constituent because obviously we've got nonfarm payrolls coming up on Friday. With that being said, then you get the ADP employment change. So private payrolls coming on Wednesday. You also get ISM Non-Manufacturing PMI. And then on Friday, of course, you get nonfarm payrolls. Now with non-farm payrolls, I'm going to keep it very short what my view is on this. Obviously last month we had a, a very depressed print, almost an anomaly at 20,000 when expectations were up at 180,000. So it was a huge miss of expectations. However, average hourly earnings outperformed by 0.1% to move to 0.4%, and so any initial knee-jerk reaction was counteracted by the fact that actually the wage component, which typically is more the focal point, was actually above expectations. So I think my, my kind of view with payrolls this Friday is, of course, it will cause the usual kind of fanfare and short-term volatility, but what I'm looking for is probably a bounce back in the jobs data. People will be wanting to see whether indeed that was a one-off, you know, kind of statistical deviation, and we will revert back to more trend but the wage data ultimately is probably going to carry a lot of the attention as per usual. Tuesday, you do have the RBA interest rate decision, so that's going to be happening. Actually, we should know the result of that by the time we come in this time tomorrow. A lot of dovish calls obviously growing in expectation over the course of the coming months and the end of the year, potentially for rate cuts from the RBA. So not expecting anything as soon as right now, but obviously anytime they make any accompanying statements about economic conditions and monetary policy outlook and forward guidance, this is going to be influential for the Aussies, so do be aware of that. Then on Thursday, before we get our teeth into Brexit, this is actually— there's two data points that I'm particularly interested in coming out of the eurozone. So for the eurozone, for me, you can divide it up into into 4 sections. Brexit is one, any updates on that. The other things then are you've got the German factory orders on Thursday, you've got German industrial production coming on Friday as well. I can't remember the fourth off the top of my head, but, you know, data points from Germany, particular interest really because of this idea that the manufacturing PMI that we had that moved down into 44 range was a multi-year low. New export orders, I think, were a 6.5-year low. Germany has really been under the cosh. And what we're looking for is this idea that Europe is bottoming out. And that's why that data was such a negative surprise. And we saw real pressure in the euro and a real bid tone in bunds. But was that indeed the bottom? And actually then, with, you know, the fourth point actually I was going to say is the flash CPI, of course. So the inflationary conditions in the eurozone, but importantly the main economy of Europe, which has been suffering economically with the uncertainty certainly emanating from things like Brexit and looming trade wars with the US on the automotive sector in particular. So the factory orders and industrial production from Germany, I think, at the end of the week are very important. Important for market prices. Okay, let's get into Brexit. Quick overview then of what exactly, uh, is going on. And again, I'll try and keep this as concise as possible. The pound this morning is moving a little higher. We're up about 74 pips. Both major pairs are up, probably a little bit of reflection of the risk appetite seen from overnight in the Asia-Pacific session. Kind of passing the baton on following the positive Chinese numbers. The DXY is trading down about 0.2%. So EURUSD up about 20, held by the R1 in the futures, but cable just stretching out to the upside at the moment. So main thing we're looking out for here is, is a potentially a twofold affair. Today is the— as you can see here, we've gone through this first part of the, the decision tree which was on the 29th of March. MPs rejected the withdrawal agreement from the government, and what that meant then is that now terms have been changed, and instead of March 29th, which is now past, it's April 12th, which is the new Brexit date to be watched. 1st of April today is the second day of indicative votes. This is when we had that sequence of votes held in Parliament where what I guess should have happened was that if Parliament wasn't happy about the deal of which the Prime Minister was bringing to the table, then they should have voted as a majority for an alternative view. But hence is the kind of split nature of what people think is the correct solution to go forward, ranging from quite soft to quite hard Brexit. They were unable to come out with a clear result. So this leads us down basically two different paths now. Can they today come out with a clear result? And remember, although the second referendum amendment, or indicative vote if you like, had the most votes, it was actually the customs union one which was the closest. This would be akin then if that went through. Remember, these are non-binding votes, so the government necessarily doesn't need to listen, although that would be very hard to reject then if that was the will of the MPs in the lower House of Commons. But it means then if there is a clear result, probably that's one to watch, and that would be then, would equate most likely to a long extension to facilitate then that we'd have to take part in the European parliamentary elections, which would mean giving notice before the 12th of April for Europe to accept in time that then we basically go into a kind of type of renegotiation around that customs union point. That's just one option, though, obviously, of several. If there is no clear result, and even if there is, Theresa May, will she accept the plan? There is obviously a possibility she could say no. If she said yes, which I think is highly unlikely, then obviously we go down this route of we just discussed, potentially the customs union option. If it's a no and if there is no clear result, one thing to be aware of is we could have indicative round 3 of votes on Wednesday. That has been penciled in, which I think has already kind of put the writing on the wall, because if I was an MP and I knew, well, we've already said kind of that we're gonna meet potentially on Wednesday if there's no outcome for today, well well then why would I change my mind as soon as today any different from last week when I know that probably Wednesday there's still a little bit more time for leveraging my position? So that's kind of how I would think if I was an MP thinking in their shoes. Um, following the tree down then obviously to the bottom right-hand corner, uh, it's the usual familiar scenarios that you're aware of. So there is still that potential if we remain at loggerheads and absolutely no progress is made, no deal could technically still happen. But hence much of the press coverage at the moment over the weekend is still reverting back to where we were several weeks ago. It's either May's deal or it's a long extension type situation. Seems still to be the most kind of base case scenario. So what are the MPs voting on? What I'll do here is just give you the timings, because what's going to happen here is exactly the same as what happened before. So let me just blow this up a little bit so you can see everything. Um, none of the MP's 8 proposed options secured a majority in the first set of indicative votes we had back on the 27th of March. Many of those 8 options have returned for round 2, but some have been replaced with new basically alternatives. What's going to happen here is that there's a whole batch of potential ones that have been shortlisted. I think there's— this time round, I think it's 8 or 9. And then at just after midday, I think around 2:30, the House Speaker John Bercow will come out and say, these are the select ones we're actually going to vote on. That voting in itself is expected to begin at 8 PM tonight. So again, very similar process to what we've had before. Rather than me go through every single one line by line, I've just put into the chat room now this article, and here are all the different motions. And again, they all have these alphabetical kind of names for the different ones and who proposed them and a summary of what each one is. So Motion A, B, C, the Customs Union, Common Market 2.0, a confirmatory public vote, i.e., on the final deal. Some obviously very familiar from what we've had before. So that's going to be tonight at around 8 PM when that voting happens. One thing that you might have read a lot of at the weekend was about potentially a couple of inside Tories talking about, you know, are we heading the way of a general election? And this was obviously a big talking point from last week given how you know, the, the nature of Parliament and its inability to make a decision at the moment. Is a general election needed to break this, this situation and to find an alternative way forward? Now, I just wanted to cover here is what is the process of being able to call a parliamentary election in UK law, because the next scheduled election, of course, is is not due until May of 2022. Now there's two ways of this happening, which is point one, two-thirds of Parliament's 650 lawmakers would have to vote in favor of holding an election. So that's one way, and that's one way which I think is probably very unlikely because I would doubt that there's that many two-thirds of the 650 that would want to go ahead and call a general election. That then leaves number 2, which is the other way, which is if a motion of no confidence in the government is passed by a simple majority of lawmakers and no party can succeed in winning the confidence of the House of Commons over the next 14 days or 2 weeks, then essentially an election is triggered. And I think actually this would probably most likely be the case because there was an opinion poll released on Sunday And if you were looking at voting intentions for Westminster, Conservatives and Labour are neck and neck at 35% each. There is no outright— and this is, this is kind of the point— many of May's Conservatives oppose the idea of an election. If she cannot persuade enough of her party to support an election, May could be forced to back a no-confidence vote in her own government in order to try and trigger one. Quite an interesting concept, uh, obviously going forward. So yeah, just something to be aware of, I think, of the— these procedures. Okay, final thing I wanted to mention, and then we'll revert back to Friday for a summary, and I'll hand you over to Sam. I just want to mention this because obviously it gets quite a lot of airplay and comes after an incredibly volatile week that we had for the Turkish lira. It was almost as if the lira story was kind of put aside as Brexit and trade wars kind of ratcheted up and this focus macro-wise has been elsewhere, but it's been reignited by local level elections. This comes after a very turbulent week that we had for the Turkish lira. This is the last week you can see going back to March 25th, and early results from Sunday's election showed that Erdoğan's ruling coalition won over 50% of the national vote but lost in the capital city of Ankara, and the result in Istanbul hanging in the balance with ruling party and opposition candidates both claiming victory in quite a tight race. There's been liquidity issues. This has seen interbank rates sharply spiking in the last week, investors speculating that the central bank is burning through its reserves. Data on Friday showed that the central bank's foreign reserves had dropped sharply for a third straight month. So new problems obviously emerging here for Turkey, which at this point seemingly are quite contained to this country individually. But obviously this did have quite a contagion risk for the EMs overall. I guess the counterargument to that is the biggest EM of all, China, is actually in a positive state for those aforementioned reasons at the beginning of the briefing. Which is probably why this is just being held in isolation to Turkey for the moment. So yeah, that's the week as a whole, and that's really it from me for the moment. So again, to round up, you've got major US data coming throughout the week, which will be very important, uh, and then this all culminates into the buildup to non-farm payrolls on Friday. So again, you've got retail sales, ISM manufacturing, both important figures coming out this afternoon. Trade talks obviously need to be monitored, still progressing in a positive fashion. Chinese officials arrive in Washington for further discussions from Wednesday, so very much for the second half of the week. Brexit, obviously indicative vote round 2 today. Potentially, I think there could be a situation where we again have no majority view, which means we come back on Wednesday. And all the meantime, looking for I would say potentially Theresa May still indicating the fact that her deal is the best deal. It's either that or a long extension. And then the German data again, eurozone flash PMI coming out later on this morning, but their German factory orders on Thursday and IP industrial production coming out on Friday. All right, let me hand you over to Sam then and he can talk you through the the charts in a bit more detail. Otherwise, I'll catch you in the chat room, and the weekly strategy will be issued later on this morning. All right, have a good one. Thanks very much.

Thanks, and hope everyone had a good weekend. Have a quick look over the charts, how we're trading this morning following the 2-day break of the markets. Have a look at the currencies to to begin with, and I was actually in the office on Friday evening, just watching the euro, and myself and Charlie had a shorter, more medium-term position, well, more medium-term position, I'd say, short euro/USD, and we're looking at sort of getting it down just a bit below the current low that we had from last week, you know, there being that low from March, or February, sort of just a bit below where we're trading. Uh, had some negative, I suppose, dollar-related comments on the idea that the Fed should cut next, and the reaction sort of into the back end of the session, uh, made us sort of take that, that trade off. Um, however, I still prefer this market to look to for it to come back down. I think there should, you know, maybe for, for the week ahead of the, the data that is coming out be you know, a couple of lines in the sand. You know, the high from Friday, which was the, the low from Thursday morning, is, is an area I've got marked up. If we were to get above that, and then also you'd be looking at the sort of recent trend of the market also to have broken, then we could perhaps see a continuation higher. But for now, I do favor the downside. And actually, just having a look at, at the market now, we are looking to probably come back and test this trend line that's just broken here. You can see now, having broken through that just in the last sort of 15 minutes or so, um, then maybe we are gonna see a bit of a move lower, which is in correlation with the recent trend of this market. Uh, the pound, I think, as usual, just gotta wait. It's gotta wait and see. I'm— I think the overreaction on Friday is sort of justified perhaps this morning, uh, the recovery from those lows slightly limited on Friday evening, but we have pushed higher, uh, today. Important area to keep an eye on should we keep pushing higher this week, 132, the previous lows that we found support on before that breakdown and retest on the Thursday would be an area I'd have marked up on the chart, uh, but as usual, trade, uh, pretty cautiously. The, the lows technically worked very well on Friday was also the low that we had back on the 8th. So despite the topsy-turvy nature of this market, the technical is still half working okay. And the low of the 21st, this provided good support initially on Friday morning as well. Aussie and yen slightly clearer, I think, in, in direction. The Aussie benefiting from the positive trade talks. However you do with the RBA, as Ant mentioned this evening, um, or tomorrow morning depending which way you look at it. So, you know, maybe into the back end of today's session you won't see in the too much in the way of movement. But as long as the, the trade walks remain— trade talks remain positive, S&P remains higher, China sentiment is, uh, to the upside, then I do prefer this market continuing to push on. The, the lows that we had on the back end of sort of, uh, Thursday, Friday have held really well. Albeit we did come back down to test late Thursday evening, but since then we have pushed higher. And some important technical levels which found good resistance Thursday, Friday, and Wednesday evening all have been broken now, and that sort of gap open. So as long as we do continue to push higher, uh, in, in equities, I think Aussie got a favor to the upside as well. Wouldn't be too surprised to see this being the, the sort of, uh, the sort of profit-taking reason. You've got a further test of this potential trend line as well. But if that was to go later on, uh, you've got to imagine there's a bit more room to go to those highs that we had back on the, the 26th. Uh, the yen— so here we're looking at the yen against the dollar. Uh, while yes, the, the US dollar is down here, you've got it stronger against the yen. And that's very much a case of equities leading this sort market of risk-on equities higher, yen lower. And again, similar with the Aussie, if, if that continues, then this trend that we've seen this morning I do believe will continue as well. Line in the sand, I mean, for, for today can go with sort of Friday's lows, which found really good support back on the, the 21st, but all throughout Friday session, and was also the sort of attempted gap fill in the futures here as well. So that could be your area to keep an eye on should we see any sort of reversal. If equities were to come down— of course they did gap higher— and then the yen looking to, to get aggressive back up to these points would not be the worst idea to have a look at. Just to go over that, that gap open here in equities, you can see Mark's up on the chart, um, seems quite a way from that now. 2830, well, 2840 around the, the sort of the gap, and we're trading 15 points higher. Been a really technical market, medium-term S&P. You can just see, I mean, how well we reacted to the 8th of October low that we kept talking about. And the first real test, second test were great. We've come back down since then, but we're not too far, of course, from retesting that area. Break through that, 2,900 will be on, on people's minds before the all-time high, which still doesn't seem too far away, uh, for that market. I think you just got to go with the flow for equities at the moment. You know, it's been a hell of a journey since Boxing Day, but not much is standing in the way of it. And while that is the case, you know, trade what you see, not what you think. And probably the same goes for oil, um, REITs, you know, I mean, from the back end of December looks the same as S&P really, doesn't it? A bit more technical in the fact that the previous highs have offered such good level of support once we broke through such a talked-about level from us and other people as well on the November high that offered really good resistance in the back end of February before breaking through and finding support in March. If we were to continue to, to go higher, the next sort of key point of interest, you're looking back to the high that we had on the 12th of November last year. And if equities keep pushing and oil keeps pushing, well, I see that level breaking, uh, as well. To the downside, I mean, probably worth having this, this trend line on from the, the year low. We've had a couple of trend lines from that low that we had from December, I should say, and when they have broken, you have had a bit of a rally to the downside. But for now, uh, this, this one here, not quite completed yet, but I would definitely have this on, on the chart as a sort of gauge of sentiment. Should you be looking to get short this market? But again, going against trend for now. Oil, having broken out that flag last, uh, or the flag yesterday— no, last week, sorry— uh, we continued to push lower from the Friday. We had a bit of a recovery into the afternoon session, but the lows that we had back on the 18th and the 20th to start. It's such great resistance, and since then we've drifted lower again. So I'd say this is more of a sort of a technical push lower. You could put this down to a couple of fundamental reasons if you really did want to, but having got broken out of this, you can see it's just been pretty one-directional other than the relief rally that we had on Friday morning before hitting some resistance. So as long as that continues I favor the downside as well, and it started from the pivot this morning, is pushing quite strongly to the downside as well, just testing, uh, the, the low that we had on Thursday. In fact, Friday's low, just a bit below here with the S1. Have a quick look over the general picture to have a look at European equities, which also gapped higher. The way the DAX moves, always worth having a look at the idea that there could be a gap fill, and that would possibly start just below that R1 here on the future. So a level to have marked up, maybe an alert worth having on if that was to come and get tested. The Friday high, you'd imagine, would come relatively quickly the way the DAX moves. NASDAQ and Dow Jones similar in the gap higher. Equities buoyed at the moment. Um, the, the previous high, 2865, will be a target to be looking at the next couple weeks— a couple of days, I should say— and then 2900 should we get that breakthrough. Any questions, please do let us know. Like Ant mentioned, we'll be having a look over the charts longer term as well before putting them into the weekly strategy report, which will be out around midday. But if I don't speak to you guys, hope you'll have a great trading day and a good week ahead.