The Trading Week Ahead: 29th July - 2nd August 2019

OK, a very good morning to everyone. Monday, 29th of July. Hope you all had a fantastic weekend. Definitely, as per usual, we're going to run through everything to look out for for this week. So as you can see from the calendar to the side of me at the moment, if this is a bit small, it is something that I tweet from my own personal account, which you can see— got my handle there beneath my, uh, my image. So you can access that if you want to see it, and we'll print it out to have it on your desk. But I'm going to run through here some of the main highlights. But before I do, a quick look at the, the general setup for the morning. Uh, things relatively quiet, as you would expect. Uh, very big week coming up. We have the main event, which undoubtedly is the commencement of the Fed rate-cutting cycle, very much anticipating a rate cut of 25 basis points. But importantly then, communication around where do we go from here will be, will be very important for financial markets across assets. We've also got the Bank of England, Bank of Japan, they both have their rate decisions this week, which we'll have a look at in a second. Then you've got, starting on Tuesday, the recommencement after a 3-month hiatus in face-to-face talks between the US and China. So I'll give you some thoughts on what I think of that. We've also got more economic data of significance, both on manufacturing, non-manufacturing, coming from China. And then we've got the, uh, sum of 168 S&P 500 companies reporting this week. So probably the most busiest week in that respect. 7 of the Dow 30 coming out. So with that in mind, today's calendar from a Monday perspective is, is particularly light. We've had a couple of European earnings out, UK as well. So Centrica up about 3.6%, Sanofi, one of the biggest French companies, up about 2.3%, and Heineken, they're down about 4% on the back of earnings. But otherwise, a fair reflection, I think, of the, the lack of real big news developments over the weekend, very much so. It's more about looking ahead towards the main events for this week, and in particular that Federal Reserve announcement. And not forgetting, of course, got non-farm payrolls on Friday as well. So rather than me look at these charts, I mean, one of the ones that does stand out— I was going to say I'll leave the charts to Sam, but one is with Sterling. I want to make a quick comment on this. Just from a top-level view over the medium term. You can see on the daily continuation we've broken quite a key area, which was that low that we printed only around 2 weeks ago. And now technically, I think that just given my baseline belief that Boris Johnson's plan is to line up a general election, I do think that the narrative he's trying to build is going to be one of very much Again, this take back control and let's get our confidence back and this kind of very much emotive response rather than the details in order to control people around this national sentiment of getting the strongest position possible for a general election. And as such, the more he talks up the prospects and real credible threats of a no deal, and we've seen over the weekend and this morning, he's kind of given the very much so, the green light to cabinet officials to go ahead and start prudently planning for a no deal. Sajid Javid, the new chancellor, saying he's opened up another billion pounds worth in order to explore those options. Michael Gove saying similar at the weekend. So I do think that there's more downside here for cable over the coming weeks. I think technically now we're through that level. I personally don't see any reason why we don't continue to move down towards the 121 handle, which puts us of course in close proximity to the post-EU referendum low that we printed back in Q3 and the retest in Q1 2016-2017. That's not to say that I think it will break that level because then we start going down this general election route, which I do think is very much being as part of the Boris plan penciled in for autumn, albeit this all speculative at this point. That isn't the baseline case for the moment at least. But yeah, just wanted to quickly comment on the pound because I do think that combination of the economic data deteriorating, as we've seen with the PMIs in particular recently, but I also think that given the political strategy of now the Conservative government, I think that they will be talking up no deal, the prospects of that then needs to be priced in more than already has been the case, which has seen cable come off a good, what, 8 points now since we knew really Boris was going to be a clear winner in that race. And I do see further downside materializing over the coming weeks. For the moment, this of course coming in context of the Fed, of which I think the Fed have got a lot to do in order to add a dovish surprise to the dollar So that dynamic, fundamentally, I think the, the sterling currency will out-weaken the greenback in, in that respect. But let's go straight into a couple of news headlines. As I said, Sam's going to do the, the technical look around, and we'll start with the Fed. This is a graphic looking at the futures implied odds of the action to be taken by the Federal Reserve this Wednesday evening. Just to reiterate, right now Both Sam and I will be here to cover the full FOMC event live on our YouTube channel. Sam's going to publish a, a kind of a live holding page where you can just click on that and add the notification bell, and you'll be alerted as soon as that session becomes, becomes live. So again, we will be doing that live, absolutely free on YouTube, so do check that out. Looking at this graphic Though what we can see here is there's been a distinct shift towards really the market pricing in the prospects of a 25 basis point rate cut, not 50. Now, 50 still could happen. There's about 18% of the market which is pricing in that for a potential outcome. But what's happened is a combination of a little— a few signs of some more positive economic data on perhaps what was a more of a a negative developing theme that we had seen. And importantly, we saw comments being rolled back. I think it was Fed's Williams at the time, the New York Fed spokeswoman, came out to correct, saying he wasn't explicitly talking about the July meeting, he was talking about the bigger picture. And then the most dovish member of the voting FOMC members, James Bullard, came out and basically said 50 basis points would be too much. So I'd find it incredibly hard to see the Fed doing 50 given those two aforementioned events. So the question mark, of course, is going to be how do they follow this up? Because of course every now Federal Reserve meeting has a press conference, and so we'll be looking for Jerome Powell to add clarity about the future direction of policy, uh, is what we're going to be anticipating, which will be key. Um, the other thing that I did see, and, and really you can you can just make whatever you will of statistics. But I thought this was quite an interesting one. This is a chap, I believe the firm is LPL Financial, but this guy's quite closely followed on Twitter. He's definitely the stats man, and he was looking back at a collection of numbers, uh, looking likely that we'll see the S&P 500 within 2% of all-time highs, which we are at the moment. Anthony Cheung, and he was looking at the last time we had a rate cut with equities at around these levels, and it's happened 17 times before since 1980. And every single time that's happened, i.e., the S&P 500 has been within 2% of an all-time high when the Fed have begun cutting, then every time out of 17 previous occasions dating back about 40 years, the S&P 500 has finished higher every single time. Uh, to give you an idea about the numbers, on average the S&P's finished higher by 15%, so a sizable gain. Now of course context has to be applied, and just because this pattern is very clear, that doesn't necessarily mean it will repeat itself. But nonetheless, I thought it was quite a compelling set of numbers suggestive that, you know, from here, even though we're trading north of 3,000 in the S&P and 27,000 in the Dow, this would suggest that there's still plenty of appetite for upside when this type of thing has happened before. We shall see. Elsewhere, the other big thing that people are looking at, of course, the Trade Secretary Robert Lighthizer and each— the Treasury Secretary Steven Mnuchin, they head to Shanghai and they're going to be there from Tuesday and Wednesday with a 2-day talks face-to-face. Now, as I've said, this is the first time they're meeting face-to-face in about 3 months. This comes after that G20 temporary freeze, if you like, that they had on the US imparting further tariffs on the remaining of goods on China. Now, the key thing that you're really looking out for here is China essentially has 3 main demands in order to progress and move things forward on this agreement. Number 1 is the immediate removal of all existing tariffs, one of which you can imagine will remain a severe sticking point because I really find it hard to believe that the Americans will agree to that. Number 2 is the Chinese want a balanced agreement. Now, the Chinese have very much said before that really this is a one-sided relationship where the US is getting a lot, they're demanding a lot, And if anything, given the, the cultural differences as well, this is very unpalatable for the Chinese officials to bring back domestically. So point number 2 is they, the Chinese, want a balanced agreement. And then point 3, the Chinese also want realistic targets for additional purchases of American goods. Now you remember part of the G20 agreement from the US side was they demanded that China commit to upfront a specified amount of purchasing of agricultural goods, and that's been particularly onerous on the amount and volume of which China has to buy. So there are really 3 things I'd say you want to look out for over the Tuesday and Wednesday talks: the immediate removal of all existing tariffs, a balanced agreement, and realistic targets to be set forth from the US on the basis of purchasing of American products. Now, All three of those I think the US will not budge on. And quite interesting comments out of Trump at the weekend. And I do think that it's in Trump's own favor if he is to delay this. As long as the market isn't in a state of negative shock and selling off, which it isn't at the moment, I think Trump will want to prolong this as much as possible in order that he can then come in as the white knight and cut a deal closer towards more like 12 months' time, possibly 6 months' time, where he gets the maximum impact then for right in the heat of the political campaigning period going into the 2020 election. So my overall outlook for this meeting is that they will continue to, continue to talk. I really don't think anything of real concrete nature is going to materialize. Could that be destabilizing? Mm, I think net-net we'll end up pretty similar to where we are at the moment on this trade issue alone in terms of market reaction, is my overall view. One important thing that China said at the weekend in state media was that no achievements would be made if the US sticks to its existing stance during the Shanghai talks. And as I said, I don't expect the US to change that stance at this point. One thing that people have been looking at is the state of the Chinese economy. It continues to weaken further in July, early indicators show. So growth remaining tepid, weak demand of course as this uncertainty of the trade cloud remains. This is something that Bloomberg often put together, which is basically like a, an activity measure looking at, say, several different components in order to ascertain overall forward-looking expectations over Chinese activity. And as you can see, it's tipping in the weaker direction, even though stronger in major onshore stocks and key property stocks and iron ore prices. Small business confidence, sales manager sentiment, factory inflation tracker— these are all things which should be indicative of still the prospects of continuation of contraction of like we've seen in various different things like manufacturing in the PMI data of late. From China PMIs, which will be looking to get confirmed on Wednesday night going to Thursday morning from China, which is something to look out for. On the energy front, quite interestingly, if people are still a little bit worried about the precarious nature of the overall global growth situation, well, you've kind of got a two-part thing. So that may be potentially a question mark on the demand side, but on the supply shock front, obviously the Tensions in the Persian Gulf have been absolutely at the forefront of energy traders' minds. However, over the weekend you had pretty constructive talks amongst a lot of Western nations in regards to meeting face to face with Iranian officials for talks called in response to the escalation in tensions between Iran and the West. So present in these talks at the weekend to try and find some sort of way of working around this 2015 agreement they had in place before before the US kind of blew things up. Um, Britain, Germany, France, plus Russia and China were all there trying to have constructive dialogue with Iran, which I think is very important for peace in that particular region. And so therefore, as a byproduct of this, I do think that potential flare-ups or headline risks surrounding the Strait of Hormuz has decreased slightly. Um, this of course didn't involve the US. The US is who's really stoked that issue with that recent cancellation of the exemptions to the tariffs a few months ago. So oil prices a little lower this morning, not by a great deal, but down around the 56 handle, trading negative about 19 cents. Other things you've got this week, I mentioned you've got the Bank of England. Markets now expect a quarter point cut in interest rates this year. At the time of the May MPC meeting. And the reason why this graphic is the May, um, the blue line is because this Thursday, Bank of England, um, we're not expecting any rate cut in this meeting, but importantly, we get the latest quarterly inflation report. And so any changes to growth and inflation outlook is going to change then the perception of the interest rate policy over the medium-term horizon, typically over 2 years. And what we've got here is the, the overnight index swaps would imply then a rate decrease happening by the end of the year. Remember, rates in the UK currently reside at 0.75%. If we were to go to essentially the end to the beginning, kind of Q1 of 2020, markets have priced for rates to be at 0.5%, so a 25 basis point decrease. How much clarity are we going to get in the QIR? I would say probably not too much, but overall it might sound a little bit more dovish given the comments that we heard from Michael Saunders last week, the outlying hawkish member turning much more dovish, um, given the threats politically, certainly under the cloud of the, uh, the threat of a growing risk of a no deal under some of the rhetoric coming out of Boris Johnson and the administration at the moment. One interesting thing I did see at the weekend was a number of the latest polls, and this was one— there was several actually— by Deltapoll, and it had the Conservatives— this is for Westminster— ahead by 10, a pickup of 10 points, and opening up a lead of 5 points over the Labour Party. So a dramatic turn as Boris Johnson They're calling it in the press the Boris bounce. He really has captured or struck the right note to really resonate with those who are slightly disenfranchised by the kind of stuck-in-the-mud situation of Theresa May. And even though Boris is in exactly the same situation, that's not the point. It's this kind of Trumpism approach to politics, which is talking up a really mighty return of Britain to the fold. Which has really played out in the polls, and certainly that has reflected quite well. One thing that was quite interesting though, I did see as a side point, that as a secondary number, if Labour were to drop Jeremy Corbyn as their leader, the same poll would suggest that Labour would shoot into the lead at 34%, with the Tories at 28%. So quite interested to see if Corbyn remains under pressure as well at the moment, even just to lead his own political party would be particularly interesting. A few other things, this, I won't go into this in great detail, you've seen these before, this is kind of the where do we go from here next decision tree. And here obviously the pursuit at the moment, as far as the government rhetoric would have you believe, is no new deal. That would then lead us all the way shooting down to, can the MPs block a no deal? If they can, the UK and EU agree a delay. Europe, I would say, most likely would say yes. If there is a delay, then where does that lead down? And if we do go down this general election route, remember, that will more than likely entail, given the legal process that of enacting a general election will mean that October will get delayed. But obviously Boris could probably survive that if it was under the remit of holding then a general election. So that's, that's the baseline I'm going for at the moment. But obviously if that did go through, that's that risk of no deal. But I don't really see that as possible at this point. I think the gusto is to set up sentiment for the general election rather than anything else. And then there are other options here. Again, if you want to look at these graphics in more detail, I did tweet them at the weekend. Moving on, different subject matter. We've had 44% of the S&P 500 report so far for this Q2 2019 earnings season. In terms of the earnings, the percentage of companies reporting actual earnings per share above Street estimates is at 77% above the 5-year average. So, uh, certainly on that metric, a fairly decent performance overall for the moment. This week we've got 168 companies reporting. Just to give you a bit of a flavor of some of the bigger ones, not really too much going on on Monday, but Tuesday you see the likes of Procter Gamble, Merck, Pfizer. So certainly some of the larger pharmaceutical names in America reporting. And after market on Tuesday, you get the biggest company, uh, and the tech giant Apple reporting. Wednesday, General Electric, probably one of the highlights alongside Qualcomm. And then on Thursday, Verizon, General Motors. And then on Friday, you get the energy majors ExxonMobil and Chevron. So I will share in the chat the full kind of breakdown of that so you guys know exactly what's coming out and when. So yeah, that's, that's pretty much it. So again, just a very quick level summary. The major event will be the, the FOMC rate decision. The cut outside calls for 50, baseline is for 25, but then where do we go from here? Don't forget, market pricing is for about 100 basis points points worth of cuts into year-end. Is the market too dovishly priced? Even though the Fed cut, do we get this, this kind of more, um, almost like a hawkish cut scenario, if you like, where markets, by function of its pricing, even though the Fed are cutting and sounding quite dovish, it's just not dovish enough for how the markets are set up, and we get a bit of a hawkish reaction We'll go into that of course more on Wednesday. You've also got some important US data with non-farm payrolls being on Friday. You get the ADP employment change coming on Wednesday, you get ISM Manufacturing, and you get the whole build-up coming throughout the week. Then you've got the trade talks, so Tuesday and Wednesday. Bank of Japan interest rate decision, we'll know overnight, with the Bank of England to follow on Thursday. And then you've got littered in throughout the week all of those corporate earnings. So plenty to get your teeth stuck into. So we'll be here of course to guide you through all these different events, and hopefully you'll be able to join us live on Wednesday night. All right, that's it for me. Let me hand you over to Sam, and I'll catch you in the chat room. Thanks, guys.

Hi guys, good morning. Hope you all had a good weekend. I guess no better place to start than the pound here, which has just spiked again through the S1 and having a bit of a relief rally, if you like, from that area of support. I just posted this in the chat. We've got, uh, you know, trying to pick support on this market is going to be relatively tricky, but we're just coming up to a point here where this trend line would come into play. And a couple people were looking at this as well. You can see the low from the, the 18th, uh, the 17th, and then just hitting this now. Uh, if you look for a further move, that's going to have to go. And looking longer term now on, onto the weekly chart, you know, it doesn't look too good for, for the pound here. And, and bringing in this, this trend line that's been well respected, uh, for, well, since this started here 2017, and we got a really nice test of it back end of last year, and coming in closer to a few weeks ago. What an area of support, bounced through, closed below, and yeah, it's not looking too good. So opportunity-wise, I know you've got the Fed, and obviously that could, could see us back at, you know, 1.25 very quickly come Wednesday, um, depending on how that comes out. But certainly from a technical point of view, just for the, the pound against the US dollar, a retest of this trend line could be a decent opportunity. Levels below. And, and here we're looking really going back to, I guess you could say, one almost where we're trading now, 120. What's the low of that week? 123.65 on the futures. And if we get below there, then you're probably looking more towards, uh, 123. And the next real key support point, 121.31 on the, the futures. Not looking good for the pound is the summary of that, and not just against the dollar but against many other pairs as well. Looking intraday at the pound, as mentioned, if we can get a retest of that trend line, uh, the, the weekly one that's coming in around 1.2412, you know, I'd like a bit of that as well. And you can see on Friday we had a decent break of a trend line. I'm not going to say we're going to get up to 1.2480, but something to keep an eye on later in the week as well should we, we come in. So already a decent move lower, uh, pricing in of the no deal. I think it's going to be the main reason behind this. So we're keeping an eye first and foremost around 1.2411 as it comes in. Obviously S1 will be an area people would look at. Just bear in mind that if we do get, you know, further push from here, you know, it was a really strong level of support. So whether you'd want to get short so aggressively on S1 remains to be seen. But some decent levels to, to look to, to get in. Again, Euro— I mean, listen, today is going to be a quiet one. I don't imagine there's going to be too much going on. But, you know, just having a quick flip back to that calendar, you can see of all the days, it's the quietest. So I'm not expecting too much from that. But back to the chart for the Euro, if we're looking for a more range-bound trade You could argue the R1, Friday's highs, looks quite nice. The, the lows around S1 as well. Maybe a new range has come into play from there that should confine price. Um, pivot, yeah, I mean, it's an area, isn't it? I don't necessarily think it'd be that good. I'm not gonna say the only trades are going to be R1 and the S1, but certainly from a range-bound Monday morning, might be the favorite option to wait for one of those to really come into play. Elsewhere, we'll have a quick look over the other currencies. The Aussie, which just continued its push lower. We were talking about this trend line for what seemed like about every briefing. We did finally get the break of that the other day, and any retest of that in the coming days and weeks will be worth keeping an eye on. This market just continuing to push lower. So any of these, uh, levels that do come back into play, uh, would be obviously nice points to get in. You can see every time we get a break of these previous lows, we just get a further follow-through. So, well, maybe not today, just considering the low volume, but we can see we're starting to find this area support, 6913. A break of that, you might get that follow-through too. 2, the downside, one to, to have marked up as well. The yen against the dollar, slightly, uh, well, you can see it's still directionally over the last week or so to the downside, but slightly more choppy, I would say, over the last couple. You can see the area of support we had on Friday completely makes sense because of the reaction we had back on the 10th. I would really like to see this market get back up to this previous area of support that we did break through on Thursday. Can we get to that? You can see the lows, the 16th, the 23rd, and the 24th. Any retest of that would be nice enough to, to get in. We had a push higher in the morning, back down to where we started, and we're already up 3 ticks or so. So again, relatively range-bound, and with the, the Monday morning trade, probably best to just to hold off before getting too aggressive. Gold, you can see, almost getting up to the, the R1 and yesterday's high and yesterday's lows on S1. So very similar to the euro in, in that respect, that we have got this little range in play, uh, with help of the pivots. It might be worth just holding off on that. You know the way gold can move, so it might be worth just having a few of these trend lines on just to see if we can get those third tests at any point. That leads to that final push down or push higher either way. But for now, you've only got the two tests on those. As mentioned by, by Ant, we'll get the, the weekly strategy out where we look at these levels in a bit more longer term. But for gold here, if you just— we make this a bit more, well, you know, longer term, you know, still 15-minute chart, but going back here for the whole of the month, you can see it's relatively sideways anyway. And that longer-term trend line for gold— if I just move everything off that we've talked about in recent time, let me just bring that in here— you can see we actually didn't get a retest of it, but still holding well. And I know a few people are still short on, on that, so at any point may well be worth keeping an eye on that trend line. And of course, up to the higher point, you can see just how well on the futures, on the 240, 1432, 1430, is as active as a level of resistance. Just cannot get above that area. Quick look at gold— oil, sorry, to wrap things up. I'm gonna look at the DAX on the, the open. Just have a look at the last half hour. You can see oil quiet as expected, and that's probably a summary of how how this morning is going to be. You've got your ranging with the S1 and the R1, Friday's high and low, similar to the euro and gold and other markets as well. And oil pretty sideways as well. I mean, worth having on this trend line from the low that we had— if I just move this away from the camera— of the 18th, just to see how price can squeeze in. And then from the upside, well, it's slightly steeper but really well respected, a lot more respected, should we say, than the downward one. So worth having those on and probably waiting for a break either way and just wondering whether the volume is actually going to be there for that to happen today, uh, or not. I'm gonna look over the DAX, just trying to creep, creep higher. Um, not the most clean open, shall we say. Uh, S&P obviously near those all-time highs as well. We'll have a quick look over the, the charts longer term and get those sent out in the, uh, the strategy report. And but of course, before that, any questions that you do have, please, uh, do let us know. Just a quick one on that calendar— quiet today, picking up. Obviously got the Fed Wednesday, which will be the main thing, and then non-farm payrolls Friday as well, with the Bank of England the day before that on Thursday. So any questions, as usual, please do let us know. But if we don't speak to you, I hope you'll have a great trading day. And great week ahead.