The Trading Week Ahead: 28th-31st May 2019

Okay, very good morning. It is Tuesday, 28th of May. Hope everyone had a good long bank holiday weekend. As you can see to the side of me, we're going to have a quick review of the, the rest of the week ahead, some of the key fundamental events that you need to be aware of. We're also going to review some of the news from the weekend. Of course, we had the European parliamentary elections, so I know most of you guys have already fully aware of what happened there, but we'll have a bit of a summary, uh, of the results. We'll also look as well at the Conservative leadership race. That's obviously well underway now with several names being, uh, their hat kind of thrown into the ring, if you like, for potential replacements of Theresa May. So we'll have a look at that. Um, then also some news out for Italy, which has seen a little bit of a response in their local assets after renewed pressure in regards to their budget following a strong performance from Salvini in those European elections. And then I'll hand you over to Sam and he can look over the charts a little bit more from a technical point of view for today and the, and the week ahead. So just to start things off, just having a quick look across the different asset classes, it's a fairly quiet open. Again, people not just in the UK but the US getting back into the saddle after we had our holiday, but also they celebrated Memorial Day as well. So that means a bit of a slow initiation to proceedings this morning. Dollar a touch stronger but has been just pulling back as we've gone into the kind of full European open. So consequently a little bit of a lift in the major pairs just looking to narrow some of their losses, down about 20 to 25 pips in EURUSD and cable. Otherwise, in the stock futures space, again, pretty flat overall, very quiet over in the Asia session, really a mild positive finish that was seen in the Asia-Pacific bourses. No real big cues coming from the trade side. You'll notice a distinct lack of updates that I could give you for trade talks. One thing to be aware of though, President Trump is on the move and he is in the Far East. He's visiting Japan today, so if you were looking out for commentary, it could come a little bit earlier than normal if he was tweeting, given the time zone of where he's going to be geographically placed today and tomorrow. So let's get straight into it and let's start talking about Let's talk about the news first, and then we'll circle back to look at the week ahead. And undoubtedly, uh, the main headlines from the weekend were in regards to the European elections. And so let me just give you a brief summary of a few graphics to help the explanation. Center-right and center-left political groups have lost their combined majority, uh, in the face of strength in the Greens, populist and nationalist forces. This means they might need to now seek support of other parties to form ad hoc coalitions on a subject-by-subject basis, heralding complicated negotiations over contentious subjects such as EU budget, trade, and border policy. So if anything, you know, this kind of domestic-level politics translating into the European-wide feel where there's just such a splintered divide between political views, the spectrum then because if you look at where we were back through the, the 1980s, the 1990s, even the early noughties, you can see the dominance of the two major parties on the, on the European level, EPP and S&D here, dominating all the way through. But you can see really the emergence of greater representation amongst the other parties. And so this, of course, usual kind of arithmetic reply applies when we're talking about parliamentary matters. Doesn't matter what parliament, what country it is, the more evenly split the powers, the more complicated it is to make any type of, or to govern with any type of strong hand, meaning that generally speaking then it slows things down, it becomes more complicated, and so on. A few other kind of graphics to have a look at then. The Eurosceptic and far-right parties did make gains, that was very much expected. But they fell short of expectations. They remain roughly a quarter of MEPs. So actually, even though, as we'll discuss, we've had, you know, solid performance, of course, from the Brexit Party when you start looking at the UK specifically, but overall the Eurosceptics did fail to impress, as the headline would suggest, despite the increase that they've, they've had. Now if we start looking further down then, or I think I can jump over to the next graphic here. Um, the strength of the far-right parties will probably be felt in their home countries, especially France, Italy. Uh, you probably saw the headlines. Marine Le Pen's National Rally and Matteo Salvini's League in Italy came out top of the polls. The results will reinforce their rhetoric of the election as a litmus test of their popularity. Uh, Italy of course is the one probably the market's most sensitive to in the short term, not just in local assets, but just generally, um, as we've seen in recent months, potential contagion effects for other European nations. So here you can see the blue, if you like, encapsulates the, the kind of populist party vote. And you can see Italy quite clearly, um, you know, 47 seats is 64% of the vote being a populist representation. You know, you thought the Brexit Party under Farage was a strong showing. I mean, in Italy it's way higher. In France, 30%. Germany, 28%. The other countries that are high, I think, come as no surprise. Generally the Eastern Bloc ones on the migrant route. So Poland, 51%. Hungary, 67%. They've been of a more far-right leaning political stance for some time. Moving on to the UK, this of course was the Brexit Party's triumph in the European parliamentary elections. So as you can see, as a share of the vote, rounding it up, 31%. Liberal Democrats as well, kind of storming back from what had been pretty much what looked to have been the end of the party in the last 12 months, to come in Labour then being bumped down, and Greens showing a strong performance, as was the case across the entirety of Europe. So from a seat representation point of view, this is how it currently resides now in European Parliament. So Farage's newly formed Eurosceptic Party won 29 seats. Conservatives finished 5th on 9% of the vote. It was in fact the worst performance in a national election in the history of the Conservative Party. So yeah, it just goes to show Theresa May then had really no other choice. I mean, this was— this isn't really surprising, but the drumming that they've taken has to lead to a new leadership. And that's where we kind of head to now then, is the possible candidates for Tory leadership. So I've got here a bit of a shortlist of who could potentially be next. And obviously we know Boris Johnson, the bookie's favorite, still remains the case at the moment. Michael Gove been speaking, a lot of press coverage over the weekend. Sajid Javid put his, his candidacy forward yesterday. And so you can expect lots more commentary out of this kind of group of people. There's a full list here of I'm gonna pop that link now into the chat room if you want to familiarize yourself with all the different names, of course. Distinct kind of pattern, I guess, to these characters because they all are very much so leaning on the Brexiteer side of the political argument. Sam did tweet and put together a very useful graphic. I'm sure he'll reshare that in the chat while I'm speaking. Where he's kind of broken down a table of the order of who the, who the favorites are, what their recent kind of stance and comments are, and then his, uh, Sam's outlook for where he thinks the pound could react to should each one of those people get appointed. So quite a useful way to look at things. One thing from a trading point of view I think is quite, quite interesting here, and I did tweet this last night, but to share my thoughts Um, to make sense of this European political situation, uh, the one thing to be clear on is that just because the Brexit Party performed very well, don't forget the Brexit Party is a party without a manifesto, contain— or has no representation at all in Parliament in the UK. So their ability to shape things going forward is if a withdrawal bill— and we know that that's not highly unlikely to go through at this point. If that did go through, that's when he could cause some complications because the backing on the European side, he could then create some problems and pushback. But from an actual political composition of UK Parliament to deliver Brexit, his vote doesn't mean anything in terms of the arithmetic. Certainly it does go some way to show the sentiment across the broader public. And with that being said, one thing I think is really going to be quite a, I think, prominent theme from that list of candidates I was just showing you is I think they're going to really start ratcheting up the Brexit talk, taking a fairly hardline stance to really capture some of that sentiment off the coattails of what Farage has done the Brexit Party have achieved over the last week. So with that, although obviously cable on a very short-term intraday has, you know, it's just popping up to its pivot level at the moment, the one thing I'd say though is that if we start looking on a kind of daily chart, I would say there's definitely— I mean, some of these are, these are old here on the markups, but some of the other longer-term levels still hold true, then, you know, definitely there's a key area down here around this 126 handle. You would think that as this, you know, if I'm right and the Brexit bragging does, you know, capitulate to the point where they're all trying to outdo one another in order to say, I'm going to deliver Brexit, it doesn't matter, we'll do it with a no deal, as per à la kind of Boris Johnson has been intonating towards, then I would expect the pound to, to potentially test these lower bound levels. Now, one thing to be absolutely crystal clear on, the reason why the pound isn't just, you know, breaking down completely at this point, despite its structural weakness in the economic setup at the moment, uh, being particularly weak, um, and the political, you know, kind of uncertainties, is that overall we know still the risk of a no deal is incredibly small despite it being an increase now with Theresa May gone, and the fact that whoever comes in is going to face the same political setup within the lower House of Commons where it's very unlikely they're going to be able to get anything through anyway. And so a lot of this is being priced in, hence the reason why over the month of May we've basically gone the best part of, what, 5 handles in price action down to where we are at the moment. But certainly, I think medium term, it's going to continue to add a kind of headwind to the price action, I would suggest. All right, the other thing that's definitely in the press this morning and has already had its impact on Italian assets is the fact the European Commission is considering proposing a disciplinary procedure for Italy next week over its failure to rein in debt. Which could pave the way for a €3.5 billion penalty, according to people familiar with the matter. Salvini yesterday indicated he would push back against EU demands when crafting his next budget. And obviously this comes after Salvini had a strong showing in the European elections, and that definitely then called bringing into jeopardy the existing coalition government. between the Five Star and the League. So definitely one to watch here, uh, as uncertainties over Italy, predominantly from a political side, continue to kind of ratchet up. Um, going back to the calendar for the, the week ahead, if I just bring this back into shot, let's just have a quick review of some of the key things that we have. Um, today fairly busy in terms of economic calendar. However, I'd say there's not a great deal there from a scheduled economic data point of view really to cause too much concern. This afternoon we get the Conference Board's consumer confidence reading out of the US, but I'd anticipate that— and the consensus is for it to remain relatively high, in fact near still record levels despite the uncertainties you might think that kind of crept in on a trade war side. The consumer in the US still very confident at the moment. Looking at Wednesday, I've underlined there ECB's Weidmann. I thought could be quite an interesting speech to monitor just given the fact that he's one of the front runners potentially to replace Mario Draghi when his term finishes towards the end of the year. So trying to get a sense of how kind of more, I guess, neutral Weidmann becomes, because typically he's been known as a hawk. But does he start to rein in that view as he starts to position himself potentially for his candidacy as European or ECB president? Bank of Canada interest rate decision, that's coming on Wednesday. Expectations there for rates on hold, but the local currency always highly volatile to that release. Thursday you've got the US GDP number coming out, um, that's coming out for— it's the second reading of Q1, so looking out for any meaningful revisions there. One thing, it is Ascension Day So many continental European markets are closed on Thursday, so it could be quite quiet in the morning. Things would pick up then as we go into the— after US releases on Thursday afternoon. I do believe though German markets, for example, are open, but some of those other markets in cross-mainland Europe will be closed on Friday. By the time we come in, we should have the release of the Chinese manufacturing, non-manufacturing PMI. Of course, important economic indicators to see where we are at the moment, having been in contractionary territory. I think the consensus is for that to remain so, but to be right on the cusp of kind of the key 50 level for the PMI readings. Um, Chicago PMI, University of Michigan sentiment, so a couple of other interesting things. But one distinct thing that's not on the calendar for Friday, of course, is US non-farm payrolls. I did check with the Bureau of Labor Statistics. Owing to the Memorial Day holiday and US closure on Monday, Non-Farm Payrolls is going to be due next Friday, so the 7th of June. So no Non-Farm Payrolls coming out on Friday. All right, well look, that's it from me. I'm not going to go on any longer than what is necessary because I want to hand you over to Sam. I'm sure he's got some thoughts about levels and so on he wants to share with you guys. So I'll catch you in the chat room. Thanks very much.

Hi guys, hope you all had a good long weekend. Start off with a couple of the currency markets as things is getting under the way now after the, the long break. And you can see just as a heads up for those that use CQG, the pivots for today will be the same as yesterday due to the bank holiday. So just be slightly careful, uh, while looking there. Just having a look at the pound, which you can see is a spiked higher up towards that pivot. Uh, in terms of an intraday level, I'll just be keeping an eye on, on this trend line that goes back from the, the low of, uh, that we had back on the 23rd trending through there. A bit of a break yesterday. You can see we had quite good support initially on the, on the Friday as well before having that false break, then finding support again and going yesterday. And we're just almost coming up to test that again as a, as a line of, uh, for the bulls and the bears keeping that as a gauge of sentiment. Not a bad way to go about things today. So if we were to get back above that pivot and that trend line, then fine, we could get a bit of a a further push higher from a sentiment point of view. Um, but for now, it's, it's a tricky one. I think overall which way this market goes will evidently come down to who gets in the hot seat, uh, for, for the next Conservative PM. To also to keep an eye on, should we get a push higher, I really do like the look of, uh, the— here we go, just this point where we had the breakdown, uh, yesterday morning. So around the 7 AM low, 127.50 on the futures, I do quite like the look of as an area of resistance. Also before that, you could argue 127.33. Uh, one other market— or we'll have a look at the other currencies as well in a moment— but another market I like the look of from a range kind of point of view here is the Aussie dollar. You can see how well that found support quite a few times down at those lows. Also, the highs that we're currently trading at now, going back to the 15th, uh, has held pretty strongly. So we're, we're stuck within this range, and it's almost like saying, well, if we can get a continuation and push higher above these highs, uh, then fine, things can start to go higher. Whereas if we maybe push down and this sort of point here at, uh, 6909, uh, 10 as your, your line in the sand where you can see we've had decent price action. If we were to get back below there, well, suddenly you can start thinking about getting a test of these, these lows again. But for now, contained within the range, we're waiting for a push higher, price to come down to 6910, uh, or of course waiting for that low to come in. If we were to push on, you can still— there's still some quite key levels above where we're trading. Most importantly this breakdown that we had back on the 13th, where previously we had some good support on the 6th and the 9th as well. Having a look at the, the euro, so we've had obviously that such a strong reaction on the 23rd and the push higher from that multi-year low going back to 2016 and '17 where we had previously found support there. Uh, it's, I guess, going into this morning right now, it's, it's slightly more tricky, uh, in terms of really looking for, you know, strong areas and looking to see was there a trend line from these lows, but it's quite messy. Uh, so I was just— have marked up this, this lower point from the, the 23rd, and then obviously overnight, uh, on, on Friday, uh, and we've just come back down to test that again today. So around on the futures, just under 112, keeping an eye on that as again a line in the sand to see whether we can, uh, push higher or not. I tweeted this on, on the Friday, and we, we came to, to test it late on the session, and then, and again maybe overnight yesterday. Just this trend line going back from, uh, the 26th. It's good support again on the 3rd before breaking through on the 16th. And the couple of times that we tested it, we just couldn't confirm that break higher. So that's something I would still have on uh, here as well. If you look at that more intraday, if we were to come up anytime soon, that will also match up, I should say, with the high of the day and the R1 today as well. So quite a key trend line to, to have on, uh, as well, I would say. Um, having a look at the, the yen, so this is the yen against the dollar rather than dollar-yen, uh, to the downside, I'd be confident in that holding as long as this trend line holds as well as level support going back to the low that we had on Friday morning, afternoon, and then again, uh, early hours this morning. To the upside, the pivot, uh, which is actually quite good resistance— you've got to imagine another test or two of that and it's going to break through, and then you can get that further push to the high of the day and the high of Friday as well. But that pivot level, uh, not just from today, also a good level for the 17. But to the downside, breaks those lows would be something worth keeping an eye on, and that will very much come into play if equities are to push higher, uh, as well. And you can see it's quite similar, uh, in the fact that you've got those trend lines again from those lows. And it's the same across the NASDAQ and the Dow. And just having a look at the Euro Stoxx, that would call on my eyes, similar to that as well. And then to the upside, you probably are better off waiting for to see what happens here. Can we get a break above the R1, uh, and the, the high that we have back on the 24th. Okay, buyers can start coming in, or do we break lower, confirm that push, and then suddenly we're looking down at the low that we had on Friday and Thursday, uh, as well. So it's quite an interesting point to keep an eye on. Have a quick look over at the DAX before going over to gold. And you can see, similar to US equities, in that we have been trending higher since the closing time on Thursday. Uh, those trend lines not amazing here, but you can still see the idea that if we were to start maybe getting a breakthrough, or some of them confirm break— obviously we just had that increased volatility now at 8 o'clock. If that was to go, then yeah, US equities may well follow suit. Gold as well, just having a look here on that longer term chart. You can see the, the trend line that had been in play and been so significant last week. I'm just going to move it. It's here, going from August last year, so the low of last year, that breakthrough. We found really good support initially in May. We broke and then found good resistance once it broke on the— I think it was a Tuesday last week. But we're now back above there, and we're coming back into that key level on the futures around 1290. Well, here, 1287. You can see just how important this has been. Yes, we have chopped through it a couple of times, but even going back here to January, the beginning of the year, and then March and April, a strong level. So worth keeping an eye on that $1,287, i.e., the high that we had back on the 23rd. Can we get back above there? Things can start to get interesting for gold. Or do we start to drift lower and actually we then, you know, look to break back below that, over that, that longer-term trend line on the more intraday looking chart, you can see S1 has found good support at the pivot, good resistance. I think really I wouldn't get too excited about short unless we were to break, I'd say, Friday's, uh, low as well. Any questions, as usual, please, uh, do let us know. Uh, I'm sure Tim will come on later on to go over oil, which you can see is just coming under a bit of pressure over the last half hour or so after failing to push higher. Uh, $59, we're just underneath then, a bit of a level support which has held this morning, threatening to push on. And you've got to imagine, uh, $58.69 will be a level people will be looking to mark up there as well. But if no questions, hope you all have a good trading day and a good week. Ahead.