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

Okay, very good morning. It is Monday, 1st of July. I hope everyone is well and had an excellent weekend. As per usual, Monday, gonna discuss obviously the weekend's events, the conclusion of the G20, and the, uh, the kind of relief rally seen across assets is the main talking point for me this morning. Uh, but we're gonna look at some of the other highlights. Uh, in summary, central bank decision out of Australia— will they, won't they cut rates? You've got an OPEC meeting happening today and then OPEC+ tomorrow. You've got US Independence Day, which does certainly add a different dimension to how I think you should approach this week, because come Wednesday, I'd say late afternoon, then definitely Thursday, all markets closed in the US. and typically that can influence, I guess, people's approach volume-wise as to how they would go about, uh, their business. So definitely I'd say front-loaded in terms of the week, uh, and then payrolls still though is scheduled for Friday. So we'll come back, we'll circle around to, to that. But this is the main headline that people are looking at from the weekend, of course, and this is that Trump has revived China talks with a tariff truce. So he's gonna hold off basically imposing the $300 billion worth of tariffs that he had threatened. So remember, instead of going from doing that at 25% last week, he was saying might drop that to 10%, and now it's a complete kind of freeze, at least for the moment. So the existing US tariffs on Chinese goods remain in place, but no escalation, at least at this point. The other news notable development here was that the US would also delay restrictions against Huawei, letting US companies resume sales to obviously China's largest telecommunications company. And that also big positive because that was what China, um, have really didn't take too kindly, and they have upped the ante ever since that move, targeting specifically that company. So a bit of a stepping down on the US side on that. This particular point has been well received, and the talks between the two leaders apparently went particularly well, albeit in line with expectations from the point that there was no real definitive detail on conclusiveness to the talks other than what I've just said. They're freezing that 300 for now, and then some of the restrictions on Huawei are being also delayed. So the markets are responding in kind, and I would classify this as a real relief kind of rally. Interestingly then, US equities, S&P record high, of course, back up there. Donald Trump will be loving this this morning. He'll be tweeting, I'm sure, once he gets up. But you can see here quite a nice technical play here on the, the daily continuation. You had the previous all-time high, of course, you had the retest. We got right up there towards, I guess, last week when there were some signs that potentially, you know, they were going to broker some sort of deal. That broke down but then came back just towards the end of last week as things started to turn a little bit more positive again. And you can see how, again, record all-time high territory, but using that previous resistance now turned support as a nice launching pad around that 61.25, 62 level for, for the, the kind of push-up to where we are at the moment. So all things remaining equal, you would say now that we're 20 points short of it you've got to be thinking going to test up close toward that 3,000 now in the S&P. This is what it looks like if you look at the, the 30-minute candlestick, so you can see in a bit more detail. And that previous kind of all-time high was around pretty much lining with the R1 on the day. So gaps up, of course, decent gap up on the back of the news, bit of a pullback down to that R1 and that previous technical longer-term point now of resistance turned support, and we've just managed to punch higher as I'm speaking to the fresh record highs once again. So European indices following suit, DAX off to a 200-point-plus start for the day. What does that mean for fixed income futures? Well, of course, the 10-year on the back foot. I can see here a couple of trend lines that I presume Sam had on, um, at the end of last week. So you can see that triple touch that we had back on the 26th, and that's worked out quite nicely on the the actual retests here. Again, gap down aggressive, so the inverse relationship with the equity market. And you can see came back up to retest that trend line again before pushing back down. So the area there of support holding the SFAWN to watch on the downside would be around that S2 level on the daily pivots in the US 10-year. The other interesting product of course is gold. Aggressive drop, you know, gold had seen such a strong bid tone up to snapping through that 1400 in the last 2 weeks or so. So a couple of different moves here. You had the aggressive gap down, but then if you look at the price points that we're identifying here, this is the 1400 level. So actually opened about a dollar and a half just above the 1400 level. But remember, when markets reopen for electronic trade, things are obviously particularly choppy. So 11 PM London time last night, this is what the futures look like, looking on a 1-minute candlestick. And quite an interesting moves here, again opening just above $1,400, but then almost immediately the snap through that psychological level. You see an immediate spike of decent $13 or so in the following few minutes. But if you look at on 5-minute chart and you're playing that same story and looking at the, the cross-asset class movement, I think potentially could have had a good trade there if you were trading overnight. To play that, that key level. You can see as we got back up to retest the 1400 here and here, could have offered you a nice area to get short. Then the prevailing move, and really as Europe's come in, the early birds, the markets just continue to, to move down, down to those lows where we kind of reside at the moment. So gold, obviously unwind of the flight to quality bid now that the main, at least short-term key risk factors on the global trade war have, have moved aside. And then the other thing, of course, the dollar index is strengthening. The DXY's up about half a percent because don't forget, you know, everyone was talking about the Fed have got to go really heavy on the rate cuts, the Fed have got to do 50 basis point cut. Obviously this now removes one of the most significant headwinds for the Fed. Again, for the short term, things always subject to change, but for now the repricing of assets What's happened here is that the dollar is restrengthening. People have not completely eliminated the fact we're still going to have multiple rate cuts and indeed a rate cut in July from the Fed, but perhaps just backing off a little bit the aggressiveness and the dollar repricing then moving a little higher. And that in step weighing on both the major currency pairs. And then the other one, of course, is oil. Looking at WTI crude this morning, You can see here the opposite effect, so gap up and a push above the highs of the end of last week, so just reclaiming the $60 handle. A dual-fold effect for oil, of course, because it's not just about the trade war, which certainly helps mitigate again short-term some of the demand concerns easing now on the back of that temporary truce between US and China. But OPEC and what materialized out of the G20 meeting was basically an agreement from Mohammed bin Salman and Vladimir Putin, so the heads of state of Saudi and Russia, who have said basically we've signed off on a commitment to cut production. It's just a matter of whether it's going to be an extension for 6 or 9 months. So those kind of dual fundamental factors helping lift WTI crude as well. So I mean, that pretty much summarizes it. But I guess let me just run over a couple of those headlines just to kind of cement things in your head of what's been going on. So, yeah, I saw this chart, but we've already really discussed it. But I guess there's a nice overlay of looking at the inverse move that you've had this morning, the gap up in the S&P 500 and the consequent move down in the US 10-year on the back of this, this news and the relief rally. Gold, as I said, had such a— it's had such an awesome mid-June, uh, breaking that 1400, obviously surging from around 1340, uh, but a little bit pullback and a break below 1400, which will now act as a strong level of resistance on any pullback higher. How are we priced now in the federal funds futures? So in the short end of the curve now, still very much so pricing in 100% the idea that we're going to cut rates in July. But this left-hand bar, the one that's indicative of a 50 basis points cut in a few weeks' time, that number has been decreasing. So again, more moving to the view then that we're going to get a 25, not a 50 basis point rate cut, albeit still not off the card, still a, um, a 20% probability. This was the headline that I mentioned. This was the one talking about Saudi and Russia agreeing to roll over the existing cuts. I don't think that's particularly massive news. We've been saying this on the desk for a while, that that was going to be the base case scenario. I guess if you're trading this now, and we're going to look at the tentative schedule for today, the market now is priced for the deal to be done. It's a matter of whether it's going to be 6 or 9 months. Obviously the longer option, the 9 months, the more potentially short-medium term, the bullish that is for price given the, the extended commitment then through to potentially March of 2020. This is that tentative schedule. I would always take these with a big pinch of salt because as we know from a communication approach, OPEC is notoriously bad at sticking to the script. As I said, a lot of the surprise shock value out of this meeting is now gone given those G20 comments. But always good to know what is the schedule. So this is Vienna time, Vienna tracking an hour ahead of London. So we'll be looking at 9 o'clock the opening session, 10 AM the closed session, and things get a little bit more interesting into the afternoon then because the, um, the closed session and press conference So you're gonna be looking around 2 o'clock and then 4 o'clock for the latter press conference. But normally we know ahead of that, given the likelihood that doorstep comments from various different oil ministers will give the game away ahead of time. So, um, will we get confirmation on the 6 or 9 month? Potentially not today, because the way that OPEC meetings work nowadays is that it's not a one-day meeting of OPEC. It's OPEC Day 1. And then it's OPEC+ Non-OPEC Ministerial Meeting Day 2. So if you think about it, actually it's Day 2 that's potentially more important for the confirmation of what they'll do, because that of course is when Russia forms part of the agreement. And for that, it's going to be midday on Tuesday when we get the joint press conference. But I'd imagine you'll know ahead of time before then whether we're going to have that 9 months or not. Then, just to add a dose of reality, because everything I've talked about and everything that's being reflected in prices this morning definitely is dominated by the Trump news, and haven't even mentioned about the historic stepping across the kind of line, if you like, that divides in the region in Korea between the North and South that Trump He actually almost kind of inadvertently led to a meeting where he just tweeted saying, "Kim Jong-un, if you want to meet me, I'll be at the border." Kim Jong-un then took him up on that and actually one of the first presidents to cross over in person territory over the line. So again, it just adds to that sentiment, at least at the reopening of trade, the positive nature that North Korea was becoming a bit of a risk. But If you think about it, this is very telling in the fact that if you do a deal with China, then really as a byproduct, that's an indirect deal with North Korea because the two kind of operate as one in some respect, particularly when we're talking about US relations. So yeah, all positive on that front. But the one thing that wasn't was some of the economic data we have had on Sunday. This was Saturday night going into Sunday. You had some Chinese manufacturing PMI data. You've also had several other countries within the Asia-Pacific region, and all have remained in contraction. So there still is, you know, let's not get too much ahead of ourselves here. Although there's been some, some obvious positive catalysts that have occurred, the economic situation is still relatively fragile at the moment, and hence the reason why you know, the Fed still needs to cut and various other policy measures are still tipping towards the easing side, at least for the moment. Okay, so back to the calendar. What else is there for the week? Well, we've pretty much covered off what the major things are, but now that the G20 is done and we know the current status of the relationship with US and China, actually I'd say the trade war, if anything, might take a bit of a back step for this week. And actually, the thing I'm most monitoring most intently this week is actually US economic data again. Now, as I've said, I've discussed what the current market positioning is for a rate cut, but I think by the end of this week we'll be in a much better position as to the real under the bonnet of the US economy and the type of policy reaction that's going to be, going to be needed because we've got ISM non-manufacturing PMI later on today. We've also got Fed's Clarida speaking later on today as well. You've then got the US ADP employment change on Wednesday, you've got US factory orders on Wednesday, you've got ISM Manufacturing from the US on Wednesday, and of course you've got non-farm payrolls on Friday. So a series of top-level tier 1 indicators from the US, which I think by the end of this week then will have probably even more clarity about, you know, whether or not that 50 basis points needs to be further unwound in the market or not. Um, again, be particularly mindful of the fact that it is Independence Day on Thursday, so Thursday will be, all things remaining equal, absolutely dead in the market. And that also means that probably by late afternoon, even London time, on Wednesday there is a US early market closure, and so it's likely to be very quiet as well as people want to get away from their desks and enjoy potentially an extended weekend. So I would say most traders will be back on stateside because of non-farm, but there will be some still out of the market just given the significance of the Independence holiday for the US calendar. So very much a front-loaded week. And the final thing to mention is you've got the RBA That's the Australian interest rate decision happening overnight into Tuesday morning, so I'll be able to update you when I do this tomorrow. But the odds are, of 26 analysts surveyed by Bloomberg for this decision, 18 expect a cut, while 8 expect a hold. So on the balance, we are looking for an interest rate cut there as the the baseline expectation for the RBA. Something to also consider. Cool. All right, that's it from me. Gonna hand you over to Sam. I'll catch you in the chat room, and I'll wish you a great week ahead. Thanks very much, guys.

Hi guys, morning everyone. I hope you all had a good weekend and enjoyed the sun. You can see some, some decent moves happening, uh, this morning. Euro breaking out of that range was, uh, tempting to go either way last, last week, certainly towards the back end. And finally it did break this time to the downside early hours of the morning. Uh, we're keeping a close eye though. Just where we're trading now, you can see was a— let me just get that above there, the camera— there was an important level back on the 21st. Of, uh, of June. So keeping a close eye on what happens there. We are, however, quite low down. So whether you want to keep chasing this market as it goes lower, I'm not too sure. Can we get a retracement a bit higher? Maybe the way to look at it. However, over, you know, the coming session and, uh, week ahead, quite a lot of support obviously below where we are trading now. But should we at any point get a retest of this range, which currently is on the, the S1, previous low of the day. Got to imagine there's gonna be a nice little area of resistance for traders to be looking at there. Seeing this, this dollar strengthen up half a percent this morning, the pound just snapping down to near the low, 127. I guess it's the, the back end of its mini range from last week. However, you do of course have some support just a bit below here, so that would be an obvious target should we get a confirmed break of these lows here, uh, just hanging around basically on the low that we had back on the, the 27th, uh, and 127. So finally a bit of resistance there. Might be a similar trade if we can get any retracement at all up towards the previous lows, which has already worked quite nicely at 127.30, or any, uh, retest of a trend line there for, for the pound. So dollar strong this morning. Um, so looking for that to continue as we have broken out of the range, certainly in the euro. But I wouldn't be getting too aggressive just considering how far we've already traveled down, uh, this morning. And markets that have traveled down— gold obviously more so than others— just coming on to, to test this level, this trend line here. I drew this this morning. We only had the 2 touches But you can see it's come back down and, and hit this, which would be obviously the third test of the breakthrough. And that's acted really well along with an area of support from the 21st. So quite a key point for gold trading now. I wouldn't be too aggressive looking to get short just because of how far it has moved down as well. Can we get back up maybe to the previous low around 1393? That could be a possible point to get in as well, just in, in terms of a better opportunity to get short this market. S&P or equities in general will gap higher quite significantly, of course, now pushing on to, well, not too far away from, from 3,000 in the S&P, which didn't look too likely beginning of last week, but now a decent push higher, gap higher as well. Uh, that looks like it could well come this week. However, with all these markets, uh, the, the gap fill has got to be a trade to, to be considered, whether that be today or later in the week or not. Time will remain to be seen. I think a way to look at that in terms of just gauging, you know, possible lines in the sand, maybe from the lows, couple lows of those days, uh, that might be something that comes into play should that break through, and then suddenly you're getting a decent move to the downside. However, gapped higher, it all seems positive, but wouldn't be surprising to see a little retracement before we then have a go at, uh, hitting that, uh, that milestone, the 3,000 milestone there as well. You can see similar situation here for the NASDAQ, gapping higher, and it would also be a similar kind of trend line I'd be looking to have on just for confirmation that maybe the sellers are getting interested in this gap fill. Uh, the DAX, 22 minutes into the open, uh, just pushing higher, similar this morning with that gap. However, we're just coming off a touch in the last 10 minutes or so. Um, I guess you could keep a bit— it's not the best trend line in the world, but if we were to come back down and find a bit of support on what was also the previous low of the morning, just before the open, and that was to break through, then you could start to see a shift in sentiment. But at the moment, I think going with the flow is the, the way to, to go here. Uh, oil, you can see these two resistance points I've got marked up from earlier this morning, $60.19 and $60.87. The reason for those, if we just make this chart a bit smaller to the left-hand side, the Resistance we're testing now, low of the 5th of May, and then just above that was the low of the 13th. Key resistance points to, to have marked up if we are to continue pushing on to the upside. And then if we are to come down, similar to equities and other markets that have pushed higher, just having that trend line on. If that is to break, that could be the market telling you that now the sellers are interested and we look to come back lower. So my advice would be certainly for the dollar pairs, look to short higher up rather than looking to shorten extensions, just considering how far they've gone. Same with, with gold as well. Can we get a retracement back to one of those previous lows before looking to get too aggressive? Just because we gapped higher in equities doesn't mean it's a foregone conclusion we are going to push on. So trade sensibly and wait for the better levels to get in. Any questions, as usual, please do let us know. But I hope you'll have a great trading day and look forward to the rest of the week. And the sun is shining, so it should be, should be a good one. And yes, of course, good luck to Andy Murray in the men's doubles and possibly the mixed doubles as well. And well done to England yesterday. I know we have some listeners from India. You had to lose one game and from trade. And, uh, thank you for letting us win. Looks like we're going to see you in the semi-finals, so it'll be, uh, hopefully a closer contest. I hope you have a great trading day, uh, and an excellent week ahead.