The Trading Week Ahead: 2nd-6th September 2019

Okay, very good morning to everyone. Hope you had a great weekend. Monday, 2nd of September now. I can't believe it's already September. Um, going to, as per usual, go through this calendar that I prepare at the weekend as to ascertain where are the key potential pivots in the kind of fundamental landscape going into the trading week ahead. There's certainly plenty of things here to get your teeth into that are going to no doubt create more volatility in markets to come. So we're going to go through that and also some of the main headlines from the weekend's press, from Brexit to German state elections to Italy, and then of course to Brexit, of which this week is going to be particularly important. But first things first, let's just have a look how the overall charts are shaping up this morning. Main thing that you can see here is— let me just move my charts back to some normality. So you've got EUR/USD top left, cable, gold in the top right, then you've got the German stock index, the DAX future on the center left, NASDAQ, S&P, and at the bottom WCI crude futures and the US 10-year. So one thing you can see here is a, a gap up in the recommencing of trade electronically on Sunday night in gold. However, we've gap filled that pretty quickly in the overnight Asia session, actually found some support around the daily pivot level, and we reside just below that point at the moment. So reversing that initial gap up. But if you actually look at it, gold gapped up as did T-notes, and equities gapped down. So very much an initial negative reaction. Of course, the bigger headlines over the weekend were to do with the latest tariffs coming in in regard to the ongoing US-China trade war, and that's what contributed to that initial move. However, as you can see, pretty much all of those different asset classes have filled the gap. Equities just short of it at the moment, but if anything, I would say a little bit of a, just a knee-jerk move, then reality kicks in. This isn't really that surprising. I think most people now are of the consensus— this was— this is being Wall Street in its shared view— that we're not going to see any type of definitive agreement anytime soon. And so with that being said, I don't think it's massively surprising. We've just kind of drifted back on those moves. Otherwise, elsewhere, despite the Hurricane Dorian over the weekend being one of the most powerful in the US history, WTI crude hasn't moved a particularly great amount. And we'll explore why the proximity and projected path of that hurricane is what's particularly important, why specifically WTI crude itself has been not really that reactive. And then looking at things like the euro, pretty stable overall. So one thing, remember we were talking on Friday, was about you had the German state elections. Well, in summary, uh, worst case averted, no AfD win, and so no real immediate impact there. And we're going to touch upon Italy, but nothing too dramatic happening in BTPs this morning either. So that's the overall flavor, pretty mild open, let's not forget a very important point. Uh, today is US Labor Day, uh, same being observed in Canada of course. So that does mean that today, other than what we've seen, it's likely to be a very quiet session, um, ahead. And so unless there is something, uh, unscheduled and very unexpected to occur, the week might start with a fairly slow pace in that respect. Things certainly will start to liven up from Tuesday. But before we actually get into that and before I actually go through this calendar of main events, let's just cycle through some of the main headlines so everyone's up to speed and on point. Starting off with this latest development on the trade war side. So US has begun imposing 15% tariffs on a variety of Chinese goods starting on Sunday. Trump said the sides would meet for talks later this month. As far as I'm aware, there's no set specific date and time as yet, but very much so expecting that will occur at some point, probably towards the latter point of the month. Importantly, and just from a more of a milestone of the developments in the escalation of this trade war, Beijing's put a levy on 5% of on US crude, marking the first time the fuel has been targeted since this kind of year-long battle that's been going on thus far. So definitely, um, again, reality bites, I guess. We've kind of gone through these phases of Trump getting very hostile and aggressive, but then it looked like maybe we were going to get some kind of concession, and now, um, it's kind of both sides are standing off and just letting these incremental tariffs increase. What is that impact? Is that happening? Well, Chinese data, more broadly speaking, has been suffering. However, you have had overnight the latest, uh, Keqin China General Manufacturing PMI hit 50.4 during the month. Uh, that was against the previous of 49.9. It's the highest reading in the index since March, as well as the first time in 3 months that it's risen above 50. So a bit of bottoming out perhaps. I mean, it's been under such severe pressure, particularly in the manufacturing sector and new orders and everything else in between for China. You know, the important thing here is the commitment, as we've talked about many times before, of the Chinese authorities and very much encapsulating what they said just a week ago. It's kind of, look, we're ready to just to have the absolute expectation that things are gonna get worse in our economy, we're willing to swallow that, digest that, and do whatever is needed to counteract it. So hence the reason why we've said before, perhaps a little bit of power in the negotiation shifting out of Trump's hands to a bit more of an even split than it was before. So all in all, that's what I'm gonna say on this issue. It just means that going forward for the rest of the week, as per usual, you do need to remain vigilant for any updates on, on this. I would say though, from a news perspective going forward for this week, given that these talks I don't anticipate to happen for another few weeks between the two parties here, Brexit is really going to dominate certainly the domestic news flow and that within mainland Europe. Given it's such a pivotal week before the prorogation of Parliament, as we know. So yeah, keep it— keep an ear out on the squawk and an eye on Twitter. Of course, this will be a meaningful subject still to monitor that can impact across asset in an immediate fashion, albeit we're not expecting too much to happen this week all in all. Talking of Brexit, this is the man of the moment, of course, uh, Boris Johnson. And quite an interesting development that happened over the weekend because basically the government's come out and we're in this situation at the moment. Let me just remind you of this graphic. So this coming after the government has gone forward and the Queen is kind of giving her blessing to the process in a symbolic fashion that the parliamentary session is going to be due to end, this idea of prorogation. And that's about— that's going to happen between basically the 9th and the 12th of September. And why is that important? That's because MPs return to the House of Commons tomorrow after they've been on summer recess. And point being is then that they only have effectively a week, i.e., this week and the weekend, to really try and block Brexit if you're part of that Remain alliance group. Because then you have this kind of shutdown where no business happens. Now, that's not massively unusual because that is normally the case when there are party conferences going on. However, I am of the understanding that even when they are happening, parliamentary business can still be heard. But obviously this case very different because Commons will be suspended and it's not a case of the courts looking to block this. Now that the Queen has given it the okay, this is going ahead. That's final. Now they return then from the Queen's speech on October 14th. This obviously just gives a matter of days to then discuss potential avenues with how this is going to play out, because at this point we're still on course in UK law to leave the EU in a messy, disorderly, non-transitional Brexit on on the 31st of October. That then leads us into the EU leaders' final meeting on the council summit on Brexit on the 17th before the actual deadline. So the tightness of the timeframe is what's made people very concerned. And so going back to what's happened at the weekend, Tory MPs, it's being said now, from the government, who vote against the government in the Commons this week, will be chucked out of the party and banned from standing for the Conservatives in the next election. Excuse me. So this is quite an unprecedented step because the way that politics generally works— I can only speak for the UK in this instance— is that people are, you know, this is a the freedom of speech and so on, that people are allowed to disagree. And normally that means a rap on the knuckles, a cold shoulder in the tea room— given that we're British, that's about as bad as it gets if you were to vote against the government. But at this point, what Boris has come out and said is that, look, if you vote against us, if you try to stand up and block what we're trying to achieve here, which is a credible threat to the EU, that we're serious about this threat of no deal, then we're gonna chuck you out the party and you're not gonna stand in any of the next, if there is an election. So this is trying to quell obviously people like, you know, Philip Hammond, who was very quick to counterfire against Boris at the weekend saying, well, actually you did vote against the government when Theresa May first brought about the withdrawal bill, so it's a bit rich for you to come back and say this now when you did the exact same thing only a few months ago. But look, this isn't the point. Actually, reading between the lines, I can't help but think this is another stroke of genius from Dominic Cummings in his preparation for what I still feel is a general election which could very well be announced as soon as this week. And that's not just my view, that's Laura Kuenssberg, the very influential BBC political correspondent who obviously has the ear of many politicians in Westminster, she said, I quote, I understand calling an election, maybe even this week, is one of the options under consideration. And so although that's not fully committed that that's going to be the outcome, certainly, as she says, that is definitely one of the options. Now the reason for this, of course, is because his wafer-thin majority. But what would happen if we had a general election? Well, this was a Mail on Sunday poll that was commissioned, uh, and carried out on Sunday. It got released, and the state of parties as it would sit at the moment— and this is even with the Brexit Party running— would have a projected majority of 28 for the Conservatives. So the Conservatives 35%, Labour 24%, Lib Dem 18%, Brexit 14%. If the Brexit Party didn't run, that would put the Conservatives at a majority of 84. And so, you know, this being— and I definitely think a general election is coming, it's just a matter of when, not if— um, this is the strategy. I mean, this is the reason why Boris Johnson, since day one in office in Number 10, has been just on the absolute PR machine about all the money he's gonna spend in a variety of different ways to help the economy, and all of this gearing up for Cummings' kind of self-entitled "the people versus Parliament" election, which I think again is just so strong as an angle, you know, pitching the people against Parliament and saying it's Parliament that are trying to block the will of the people Yeah, I just think he's got this, you know, well thought out and well constructed. You know, as much as I would want the opposite to be the case personally, I just think that with him on your team and the way that the chips are kind of lining up at the moment, or the pieces on the table, I do think that this is just a matter of time at this point. What does this mean then for a few other things? Well, This is one of the headlines that other people are looking at. So obviously you can just about see the top of Jeremy Corbyn's head, the leader of the opposition Labour Party. Lawmakers are now looking to see how on Tuesday and Wednesday they can introduce a legislative measure that will enable them to prevent a no deal without parliamentary approval. So just in terms of the scheduling here, it's tomorrow. When the House of Commons reopens. There's something called a Standing Order 24, which you're probably likely to hear about tomorrow. That basically is kind of like a— do you know what, I was reading so much about Brexit at the weekend and so much of it is law that dates back to the 17th century law I was reading on Sunday night. What has my life become? But so antiquated is UK law, and it's just so messy in its interpretation and how, and how it's imposed, that basically these Alliance opposition will try to take control of the parliamentary agenda this week, which will then lead to potential for hearings to happen between the lower and upper house with the Lords as well. Things like filibuster and how that can be blocked, because ultimately they've got to get a lot done in a very short period of time, hence the reason why Boris pursued prorogation in the first place. It might mean that MPs, God forbid, will have to work the weekend and barricade themselves in the Commons. This is what some papers have been suggesting, and obviously Bercow the Speaker is back and He is very much of the idea that parliamentarians should be heard. The bottom, bottom line here, I think, if you're trading the pound, is that this week is going to be very heavy in its intensity of Brexit-related headlines. It's going to be incredibly fluid situation. There's going to be lots of change of perception about what the outcome might be. The point is, is that something's got to give by the end of really this week. It's a very important week, and if we are going to have a trigger of a vote of no confidence, which then could lead to the idea of then eventually a general election, it could very well happen this week. So if you're trading the pound, I would say as much as I'd be looking at the pound technically, uh, certainly on some of those downside levels, and I would actually, um bring out into a longer time frame the charts, and I would definitely mark out those bigger long-term targets should we break very important downside points of interest. I actually think you, you've really got to stay out of that market for the moment. The bigger moves will come, I would say, whether that's going to be further near-term downside to price in the heightened risk If we don't make any headway over no deal as we get closer to that deadline, I still stand at this point the fact that we will avert that case. And if we go for a general election, well, that deadline hypothetically is gone because we need more time then. And you could see these ebbs and flows of big massive rallies, if anything, short squeezes, and then more kind of panic as we hit these near-term deadlines again. So just going to be quite an awkward one to trade. I would say for an intraday trader, I'd perhaps look for something with a little bit more consistency in its order flow and its news flow that can be much more manageable and quantifiable in terms of the amount of risk associated with those trades. All right, moving off Brexit, let's get on to something else. Uh, let me just wind up. This is one of the main headlines that other people are looking at because this was a big development over the weekend. Hurricane Dorian off the charts as it batters the Bahamas with 185 mph winds. What are we looking at here? It's tied as the most powerful storm to hit land anywhere in the Atlantic at the moment. Now, this was a particularly interesting chart that I saw at the weekend. Let me just transition my screens. Um, just to make clear what we're looking at here, this is Hurricane Dorian's projected path. So as you can see here, this is kind of two graphics morphed into one. So this is the more zoomed out version here. You can see the Atlantic Ocean where the system is, as was per Friday, Saturday, Sunday. So it's not actually until Tuesday is expected to make landfall um, let me just zoom this in a little bit so you can see, on the Florida East Coast here before making a very sharp abrupt move in direction heading more along the eastern coastal side of the state of Florida. Now what energy traders will tend to do here is this projected path is particularly important, and one of the things that this does, Evert, of course, by taking quite a sharp move to its right in direction is that actually it looks as though it's going to miss, importantly, the Gulf of Mexico, which is the incredibly significant area of on and offshore production, refining, and infrastructure for North American crude. And as long as that is the case, well then, as you've seen this morning, WTI crude is largely uninterested in this particular weather pattern. The one thing to keep an eye on for, or an eye out for, is this is actually looking at a slightly more zoomed-in version. So actually it's going to hit around West Palm Beach and then go through, through Orlando is the projected path. But here you can see this kind of pink line, if you like. This is the natural gas pipeline infrastructure within the Florida— Floridian state. And then you've got the refined product pipelines that run also through from Tampa, going from the west to east coast, if you like, of Florida. So again, if you wanted some greater detail, the go-to guys for these kinds of much more granular level information is a company called Platts. Platts Oil is where you can get these very much more accurate and sophisticated graphics and all the underlying details of the infrastructure and pipeline networks if you are interested. But again, in short, WTI crude is not reacting. It doesn't look like it's going to hit the Gulf, which is the main concern, if there were any, for energy traders. Quick look at some other headlines to round things up. Merkel's coalition catches a break as it stems populist advance. This of course was something we were talking about on Friday, about the risk of the AfD, which have been increasing in popularity obviously for quite a, quite a few years now actually, to the disbenefit of the more traditional parties, particularly the, the fairly short-lived coalition between the CDU and CSU at the moment. But this was the outcome. So for Saxony, Merkel's CDU held on as the strongest party. And you can see this blue line here, a real surge from the last time in 2014 they went to the polls to 2019 in the AfD. And you can see there's just a consistency of how the popularity for Merkel's CDU party has just fallen over time, ever since really the 1990s. But of course, being so open and such an ardent backer of the freedom of movement and the eurozone ideal has been to the detriment somewhat to Merkel's party's popularity. But importantly, the AfD did not manage to surmount the CDU, and the CDU won by a fairly comfortable margin, all things being equal, 32.3%. To 27.8%. The other area, that was Saxony, was— if we scroll down, or excuse me, scroll up this article, one second— this was the battle for Brandenburg. And as you can see here, this was the SPD was the main party, and the AfD again massive surge but failing to get ahead. And so worst case averted basically as far as Germany concerned. Germany facing already enough political and economic stress at the moment. The last thing would have been the AfD taking credible seats in parliament, but that is not going to be the case. And then finally, um, this is Conti, of course. And just looking at Italy, Italy's Conti poised to forge a government from an unlikely alliance. This, of course, is talking about the Five Star and the PD. And we spoke about this a lot last week, and this is a graphic of the— I can't believe it— record low Italian 10-year yield. I can assure you that's not going to last long, and this is just a fleeting moment, I feel, in time of this being printed. Yeah, I'm putting it, I'm putting it out there because you can see here 1% in the Italian 10-year yield has been very psychologically and technically important. You can see 1% is bounced aggressively beginning of 2015, mid-2016, before then rocketing higher up towards 4% until here we are back again. And look how dramatically it's fallen. This has all come on the back of the fact that obviously the combination of the Five Star and the PD should be much more palatable for the for the EU, much less aggression in terms of their budget confrontations that they've had with Brussels. And all of this meaning an unwind then of that risk. No likelihood now of initial snap election and the risk of a more nationalist government coming in under Salvini, whether through his own League party or in combination with others. That now is gone as a risk. And hence the reason you've had this aggressive correction in yields. However, let's not forget, as we said before, this is the Five Star and PD, the PD being a hugely unpopular party, of course, over recent years, given their inability to make really any headway, um, after previous mandates that they've had. And so I do think that that is a coalition with a number on its ahead of how long it can survive. And therefore, I think this is just a bit of a relief move in Italian bonds, and hence this yield I do not anticipate will remain at these levels for long, whether that's months, several or more. I do think that that coalition will not last, is my overall baseline view in terms of a timeline. So you're aware of Italian headlines Mattarella, the president, will present his new government lineup on Wednesday. The government will be sworn in by the end of the week. The vote of confidence in parliament is expected to happen the following week. Okay, wrapping things up then, quick look at the calendar and I'll hand you over to Sam for the technical review. So today, particularly quiet Labor Day, US and Canada, so do keep that in mind for this afternoon. As we can see already, and as I was kind of suggesting right at the beginning of the briefing, Equity markets are rallying at the moment. Gap fill now on the S&P and NASDAQ. You can see, keep an eye on the DAX getting close to Friday's highs. But this all being a reverse of the initial knee-jerk reaction to those tariffs going into action over the weekend between the US and China. That, as I said, is not surprising news to me, and hence the reason why you're getting a bit of a pullback in those initial moves. Going into Tuesday, you do have the RBA. This week you've got the RBA and the BoC interest rate decisions. RBA happening tonight, overnight, so we'll know that tomorrow morning. And then the BoC happening on Wednesday. Both those central banks expected to hold rates at this point at— trying to think what the rates are now in those countries— 1% and 1.75%. But as is always the case, I definitely We'll be keeping an eye on any accompanying language that comes along from those central banks, but not expecting any real rate change, so to speak. House of Commons returns Tuesday is when the action is going to really kick off. So if there's anything Brexit related today, it's likely to be more rumor mongering ahead of then the official reopening tomorrow. And then really, that's when it all kicks off and MPs will be racing against time before then. Prorogation kicks in and the House needs to shut again. So going into Wednesday, um, well, really overall from Tuesday, ISM Manufacturing PMI, you then get Wednesday a cluster of Fed speakers, Thursday all the other major US data, ADP employment change, durable goods orders, factory orders, non-manufacturing ISM PMI, All of that US data kind of condensed given the holiday on Monday, but that also is front-running the fact that we have US non-farm payrolls on Friday, the headline I think of which is expected 158,000 at this point. So a lot of US data to come. Don't forget we've got that interest rate meeting on the 18th, so that's not far off now. Markets still anticipating a 25, not 50 50 basis point rate cut. But importantly, obviously September's meeting is the latest update for the Summary of Economic Projections. Not so much this cut— we know they're going to cut again most likely, and what size— it's about what are the prospects of the subsequent hikes thereafter that's going to be key. And these data points, as well as the slew of Fed speakers, will be very telling to give us a little insight before the blackout period of what the Fed are kind of queuing us up for in anticipation of those events. Other things to be aware of: UK Services PMI on Wednesday, and you've got German factory orders and German industrial production happening on Thursday and Friday, which I think will be particularly interesting as well given the focus on that in terms of their economic situation at the moment. Okay, just going to hand you over to Sam. And I will catch you up in the chat. Please leave a comment on the video if you do have any questions, more than happy to help. All right guys, have a good one. It's not working.

All right, all right guys, hope we're, we're doing well. I had a good weekend as well. Shame about the, the North London Derby. Yes, but we'll, we'll get over that. Moving on to equities, as I mentioned, we have filled the, the gap there, uh, give or take, well, probably a point or so on that. And, uh, just brings us on to where we finished on Friday, just such a key, key level, uh, key zone. We've had it marked up from, well, a couple of weeks ago, going back to— I think it was the, yeah, beginning of August 2nd. Just could not close above there, and it's proved to be so important. Going back, you can just see how key a resistance point that is. And like I've, I've said in previous briefings, you know, medium term, I'm not looking to get long unless we close above that point, and we failed to. Uh, so at the moment, while yes, the gap fill completely makes sense, uh, I'm not getting, uh, too bullish until we get above that. Just above where we are trading now, obviously that gap fill key, just above the, the pivot you've got a couple of key points: 29.31 and a half and 29 and a quarter on the, um, on the future. So just above the pivot you can see some nice resistance there, marking up with that, that area. So that's somewhere I'll keep an eye on. Also to, to the downside, we are starting just to trend higher today, so again, worth getting on potential trends as well. At the moment marking up with the S1 on that third test. Again, if that was to break, then sure, you could be looking down for a push lower. 2900, a key level, as we did find some resistance back on the 27th. So for stocks, not out the woods yet despite a nice push. We've got some key resistance points to keep an eye on. One market that did move, uh, considerably on, on Friday was the EUR/USD, which I'm happy about, having been short for, for quite some time, making it a new 2-year low. 1.10 on the futures, uh, being breached. We briefly got back above there this morning. However, we have just made another new low for the day. Still a fair whack away from, uh, that low, um, from Friday, but certainly worth keeping in a close watch on that. Any retracement over the coming days, obviously keeping an eye on Friday's original low, 110.46, as well, to keep a close eye on that. If we have a look on the, the longer time frame, you can just see how long ago it was that we were trading these areas. You know, here we are, see, very low down, breaking through what was the 2017 January low there for the euro-dollar. For the pound, it's, well, from its low of the year looking slightly better. However, we're just gonna draw this trend on now, and we're not far away. If actually— have we tested it? Not yet. Not far away from testing this, this trend line. And this is something I've been eyeing up for a while, is I want to see what happens on that third test. And then it could well be that you do get a break below. But like I said, probably not worth getting involved just yet. So maybe from a technical point of view, fine, waiting for that trendline break and then looking to attack some of these levels that mark some of the lows of the day. Or to the upside, really a confirmed break, I guess you'd be, you'd be wanting to see something back above 122.50 for it to be more concrete to the upside. But for now, middle nowhere, I guess, is a fair observation. Break of that trendline to the downside wouldn't be the worst idea if we can close below. Gold and silver have just looked almost like they are stalling up at those, those highs. Multi-year for both of them. Just put the pivots on here. The dollar just strengthening a touch, which has helped bring these markets down. I think overall bias is, is still to the upside if we can get it a bit lower. We can get it a bit lower down. Some interesting levels below— well, a fair bit below where we are trading around, sort of 1510, uh, to 1503 as a good area of support, which I don't think is out of the question that we could reach, uh, this week. And I, I would imagine there to be quite a lot of support for a further push higher. But for the downside, it's almost— I'm gonna put this into 60-minute now— into a couple of new ranges. Yesterday, or Friday's high and low, uh, marking up a bit of a new range, 1525 to 41. And that 41, that did break, you can see from last week up to around 1556. And the high that we had on Thursday, a bit higher up, was that new range that we had, uh, or the previous range, I should say. So gold just range-bound, uh, over the last couple of sessions. A break of Friday's low, I'll just be keeping an eye on around 1,500 as a key level of support. Quick look over at oil and then European equities to wrap it. See Friday's move lower with, um, in correlation with a couple of markets It's— has just seen a brief pause. But when we have this, obviously worth— let me just put this on the 15-minute. It's worth having a look to see if we can get any trend lines and of course waiting for then the break, uh, later on. So we'll be keeping a close eye on this as we're just coming to around $55, uh, handle. Obviously some key support, uh, from this morning session, which may well be the third test of that trend line as well. So the idea here could well be if we get, uh, level support, waiting for your breakthrough retest and looking for it to come down, uh, is a way to look at it. To the upside, quite a lot of resistance just above where we're trading, really. 5522 as well. If we were to get any further retracement, you have got quite a lot of previous lows which will act as resistance above that pivot and around 5540. 48. We'll have a look, uh, well, closer to midday when we, we get the, the strategy report out. But just having a look at oil, uh, on the, the daily chart, you can still see where we're getting squeezed from both directions. Not necessarily the most perfect, uh, pattern either way, but certainly from the upside, from the high that we had back in April, uh, and even the, the low that we had in August, with this perhaps again, like the pound, just waiting for a real key break either way before wanting to get too involved in this market. So it could be that a safer trade is to wait for a break above here or to the downside. So around 54s or 57s, uh, in, in patience and waiting for that move. Quick look over at the DAX, which is, uh, as, uh, US equities started as well, started, uh, to slightly bullish, filled the gap. Um, not too technical in the way it's looking. I guess you've got the previous high of the day that's been tested now and again to the downside, like with the S&P. I would start to just have these trend lines on, uh, as it might be that we do get that reversal and the breakthrough. I just must stress again just how important that area on the S&P is with those, uh, highs that we just can't break through. $29.50 on the, on the daily, uh, it's looking at. And you can still see, this is obviously from a previous briefing that we were talking about, just how similar that price action is from October, November, December last year as to now, but it's on a shorter time frame. So unless we break above that area, I'm not too interested in getting long. We get above there, I think all-time highs then come very quick. Any questions, as usual, please, uh, do let us know. But if not, I hope you have a great trading day and even better week ahead.