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

All right, very good morning. Hope everyone had a great weekend. It's Monday the 2nd of December, and so usual routine for the look ahead next couple of trading sessions. What have we got on the agenda? So I'm going to run through this calendar shortly, but before I do, let's just have a look at the charts and the general open in UK and Europe this morning. You can see quite a distinct pattern here. Gold, as I'm speaking, top right, is printing fresh session lows, testing down at the S1, down of a loss of $10 already this morning. The US 10-year, bottom right, down 15 ticks at session lows. Bunds are down about 70 ticks, and equity index futures are positive this morning. Little bit of a move lower initially but just moving to the upside as I speak. So you've got stocks moving up, and you can see here, if you're looking on the right-hand side of my charts, given the mixed asset classes I've got represented here, you can see almost a perfect inverse correlation between stocks and bonds. So here, equities moving higher, and then T-notes and gold moving lower. In summary, and going to go into these in more details, you've had solid Chinese data over the weekend and overnight on the manufacturing activity. In fact, the number that came out, it was a 3-year kind of the best number we've had in 3 years. We've also had some developments over in mainland Europe, in Germany, where the leftist duo have come out with a shock victory, taking control of the SPD. And I'll go into the implications of what that means, but essentially a push potentially for way more fiscal public spending in Germany. That's likely to fire up then German yields. So the Bund under quite severe pressure this morning. So kind of a combination of those things. Elsewhere, you can see we've had a gap down in the cable chart as well. This comes after narrowing in the polls there's been 5 released over the weekend, quite a large divergence between them. But the one that a lot of people are focusing on is the one out of the BMG, and the Conservative lead has now narrowed to just 6 points. So you can see we've gapped down in the reopening of sterling futures, and we've pretty much X'd out the entire gain that was seen from that YouGov MRP poll that we had this time last week. Elsewhere, WTI crude It's up about $1 actually this morning, which is a pretty decent move already. And we've reclaimed the $56 handle. But don't forget, a lot of this is just a bit of a natural bounce from the pretty severe sell-off we had at the end of last week. You know, kind of a number of factors here. The expectation about whether or not there'll be any decisions from OPEC to further deepen their cuts. We had technical breaks, we had very illiquid trading conditions because of the Thanksgiving holiday and the lack of US participation. So a number of factors there prompting that aggressive sell-off. And of course, the, the production levels in the US back to record highs as well. However, a bit of a bounce, and we've also had some comments out of Iraq over the weekend. They've been talking about the necessity for OPEC+ to mull more cuts, uh, has changed a little bit the narrative going into the OPEC meeting that's happening later on this week. So that's the overall kind of sentiment setup for the charts. You've got slightly firmer equities pressuring then fixed income markets and gold. So mild risk-on, uh, given the Chinese data, given the domestic politics happening in Germany as well, which is having quite a big impact in your European yields, particularly that of Germany, are in focus, as well as the latest polls in the UK. So let's jump straight into some of the headlines, and I'll circle back to that calendar in a moment. Here is that Chinese data. So Chinese manufacturing expands at the fastest pace in 3 years. Improved data coming, of course, despite what has been falling business confidence with the ongoing US China trade talks. A separate official reading of manufacturing activity released on Saturday showed a return to growth for the first time in 7 months. So remember, with the manufacturing PMIs, there's the Caixin reading, which is this one, which is the private reading, and then you have the state reading, the official reading that came out on Saturday. So the the official reading from the government, this is what it looks like. And as you can see, a move back above the psychologically important expansionary figure of 50. So we had been in contraction in Chinese manufacturing PMI for several months. Not since going back to really March time of this year have we been into this type of, uh, territory in a 50+ region. So, you know, pretty decent bounce here, and that's helping lift some of the equity markets both overnight, the Asia-Pacific session, and first thing this morning. However, it does come with one small caveat, and that is, of course, the biggest macro risk still remains that of the ongoing trade war. And this is a comment that came out overnight and something to be aware of. The actual detail here is a trade deal between the US and China has now quote, stalled because of Hong Kong legislation, according to a news website overnight, citing a source close to US President Trump's negotiating team. You remember there was a bit of shock that there was almost unanimous bipartisan support on Capitol Hill in Washington to back the pro-democracy protests that have been happening for several months in Hong Kong, and Trump last week sign that into official legislation. And apparently now some of the undisclosed sources, so not yet official comment, have said that basically this, this deal has stalled. Now the reason why the market isn't just dropping on the back of this story is I think we were kind of of this opinion anyway last week. Stalled doesn't mean collapsed, and I think that's the way that I'd interpret this news. Stalled might mean then that For the moment, this just prolongs the existing kind of impasse for a little bit longer. But of course, the 15th of December will be the most nearest-term milestone that something's got to give, because that's when the next initiation of the— a round of renewed tariffs on the US on China comes into effect. So something's got to give over the next 2 weeks. But as is the way of negotiation, I probably wouldn't expect that to happen, or movement on, let's say, a temporary delayment and kind of kicking the can down the road, as we've seen many times before, is my base case scenario or view. That probably won't happen until perhaps December 13th, 14th type time frame. This is what's happening in Germany, uh, just to give you a bit of an overview because it might not be something that you typically would follow that closely. So what we have here is these two. This is the leftist duo of Saskia Esken and Norbert Walter-Borjans, and they won a shock victory to take control of the center-left Social Democrats, otherwise known as the SPD, on Saturday. They defeated a centrist pair led by Finance Minister Olaf Scholz. So here you've got a leftist group now taking over from a centrist. And these are very important because it forms then part of the coalition that runs the German government. Now, Mr. Esken has suggested he would be willing to stay in a pact with Angela Merkel, the German chancellor, but only if the CDU agreed to half a trillion euros in public spending on key infrastructure over the next decade. So very kind of reminiscent, I guess, of this kind of Jeremy Corbyn approach of substantial government spending. Now, the main thing that this would have, of course, in terms of the way markets are reacting, is implications for a country like Germany, which has traditionally always run a surplus. But if they start to borrow more money and start to really fire up their economy, of which has been somewhat depressed by the trade war, the uncertainty on Brexit and so on, then technically speaking, you would expect then yields to reflect that by moving higher. Very different situation to, say, the UK in terms of its current debt situation. And so Bunds heavily down this morning, lower by about 75 ticks or so. And in sympathy, then, let's kind of read across into gilts and T-notes are down about 16.5 ticks as well this morning. But that, I'd say, in combination with the Chinese data, is helping exacerbate some of that yield movement this morning. Other things to have a look at, um, this is something of which I was talking about, um, originally as soon as that YouGov MRP poll came out. I mean, I was quite forceful in my opinion that I thought that people were a little bit overestimating a poll that's 2 weeks out or more than 2 weeks out from the actual day of election. Definitely, I think polls as we get closer towards the deadline, the D-Day of the election on the 12th, they're going to become more and more influential. But the base view is materializing, of which is the polls are narrowing. And the latest one, well, let me just have a look here and you can see all of them in one shot. This is everything that came out over the weekend. So we got a bit of a split. The opinion poll for The Observer had the Tories ahead by 15. The Delta poll, Tories ahead 13. ComRes and the Sunday Telegraph, Tories ahead 10. YouGov, Sunday Times, Tories ahead 9. And the BMG, which is the one, of course, that all the news agencies are latching on to, came out on Saturday in The Independent, had the Tories ahead by 6. So a couple of things to, to keep an eye out for this week, and that is more polls of course, but we do have this happening. I did tweet this. This is the full kind of agenda for the NATO Leaders Summit happening at the Grove Hotel in Hertfordshire starting a bit later on in the week. So Trump actually does arrive in Britain today. He's been silent so far in respect of that incident that happened on London Bridge in, in the city on Friday. But obviously a lot of people are going to be watching what he has to say and also the relationship of which Boris Johnson has in particular focus on things like the NHS and future trade relationships. So that could be quite influential for how the public's reception is of Boris Johnson as we go through this event. So I believe the schedule, kind of the main events, are that Trump and all the other leaders will be having a bit of a champagne reception at Buckingham Palace on Tuesday night, and then the actual event gets, gets going on Tuesday and Wednesday. But there's a full agenda if you want to have a look at it on my, my Twitter account. Other than that, um, the other thing I wanted to mention was this: we do have an OPEC meeting happening at the second half of this week, and you'll remember Saudi Arabia were trying to put the pressure on the likes of non-OPEC members to start stepping up to the plate. So the existing deal, may I remind you then, is stipulating supply cuts of 1.2 million barrels per day for OPEC but it expires importantly at the end of March 2020. So that, that deadline is approaching for the current deal. Now, officials will decide later this week whether these curbs need to be extended or possibly deepened. Analysts expect the current deal to be dragged out into the middle of 2020 or even beyond, with certain countries pushing for greater compliance. I was reading this morning I think Russia, of course, which is absolutely pivotal as the second largest producer of crude oil on the planet, but also the major player in the non-OPEC side, OPEC+, I think they've not been compliant with their agreed supply cut level for the last several months. And so that's why Saudi have been ramping up the rhetoric at the end of last week, as we covered in the briefings. Um, the main comment that's come out this morning is from Iraq. Iraq have said that OPEC and its allies will consider deeper production cuts, although these comments come after the coalition has widely signaled reluctance to take such action. So don't forget, Iraq is a country which has suffered mightily under the stress of Islamic terrorism over the last decade, they have been the least compliant of nearly every oil-producing nation because of that fact. So I think it is not surprising at all to hear such commentary out of Iraq. I'd say the consensus is that they might be hinting towards the current deal being rolled over. I think at the moment it's lesser likely that they'll deepen the cut to fulfill the request of Iraq, even though there might be other countries that might be willing to do so. I don't think that Saudi and the others will agree, essentially. When is this happening? When is this all taking place? Well, here's the calendar. So the actual OPEC meeting, it's a 2-day meeting. Day 1 is on Thursday, as you can see here. Day 2, then, when they have the official press conference, will be on Friday. If you are trading crude oil And if you're a fairly new trader, don't forget that OPEC meetings, although the official press conference held by the Secretary General is not until the Friday afternoon, you will know quite definitively the outcome of that meeting even before the first meeting is held. Very different from a central bank in the way in which they communicate, how organized and efficient they are in the way that they have hold their press conferences and closed-door meetings with OPEC. All the oil ministers will ascend on Vienna, and you will already know all of the comments and decisions before— well before. And so therefore, prices will be reacting earlier in the week, and by Wednesday night, we'll pretty much have clarity on what the end decision will be. So do bear that in mind. Otherwise, just a quick review of the overall, uh, kind of feel for the calendar. So today you do have UK Manufacturing PMI coming out a bit later. So we get the whole kind of manufacturing PMI update across the globe because later on this afternoon we also get the ISM Manufacturing PMI. And don't forget the Americans back after their Thanksgiving holiday as well, so business as usual. We do have some central bank decisions happening this week. We've got the RBA. That will be overnight tonight going to Tuesday. And then you've got the Bank of Canada as well happening on Wednesday. Both those expected to remain on hold in terms of their actual interest rate. Other things of significance: ECB President Christine Lagarde testifies at EU Parliament a bit later on today. You also have then the various different job indicators coming out of the US. So ADP on Wednesday, you get ISM Non-Manufacturing PMI on Wednesday, as well as the Service PMI in the UK. You've got US Factory Orders on Thursday, and then of course, first Friday of the month, US Non-Farm Payrolls is happening on Friday. Just as a heads up, heads up, don't forget to subscribe to our YouTube channel, and we're going to be covering that, Sam and I, live for non-farm payrolls. So hopefully you'll be able to join us, 1:30 London time. And then if you saw the ITV debate last night for the build-up for the UK general election, there's another debate. But really, these are the two main contenders. You've got Boris Johnson going head-to-head against Jeremy Corbyn in the BBC leaders' debate, and that will be on Friday night. Okay. That is it from my side. I'm gonna hand you over to Sam. He can go over the charts, and we'll be sending out the weekly strategy as per normal a bit later on this morning. Thanks very much.

Yeah, hi guys, hope everyone had a good weekend, especially those in America for Thanksgiving, and happy Cyber Monday. Of course today. We'll have a quick look over some of the fixed income charts. The Bund coming under some pressure this morning, as, as Ant was mentioning. And I'll just move this chart just to the right-hand side. You can see the level we're trading at now is incredibly important. The, the low that we had back on the, uh, the morning, pretty much exactly where we are the time we're trading now, but back on the 22nd. You can see, uh, since then price had just pushed higher, gone into a bit bit of a range. We broke down, uh, past that lower part of the range this morning, and we're just testing that, that area now. So 170.31, certainly a point to keep an eye on from a horizontal area of support. And even going back to, to previous days other than that 22nd, you can see the importance here again on the, on the 13th, and then both on the 5th and the 6th as an area of support. So historically, over the month of November that area was, was pretty important. And again, coming now into December, so keep a watch on that. Obviously down quite a fair bit today, down already 71, 72. Uh, just seeing a bit of a push higher in, in Euro stocks as well, which is a bit unusual. But, uh, to, to see this, the pace of this move, but just coming to the top end of that range. We'll come back to stocks in a moment. T-notes down as well under pressure. It's broken, uh, the, the key point from the 18th, which is also again quite a key level at the beginning of November. So keeping a watch on, on safe havens here, and certainly the bonds and fixed income market are the ones that are really struggling here. T-notes would be looking down for the low of the 13th, which was the high of the 8th, as a potential area of support. But a decent move lower in early trade, and that has dragged through a bit to, uh, your gold markets, which you can see had another go last week, at the back end of last week, getting to, uh, that area of support where we saw the breakdown through. Couldn't, uh, close above, and, and now we're back down to where we were in the, the beginning part of Friday's session. And just this whole area just below where we're trading, let's call it $1,460, uh, is, is, is going to be very important not just today but for, for the week as well. A lot of area— areas where the buyers have taken over and we pushed on. And so a close below there, well, could get quite ugly, you would imagine. And you therefore get a test of what was the low of November, looking at $1,453. So $1,460, very much a key level for gold. Um, however, last few times we've come to this point. We have pushed higher quite, uh, aggressively on a couple of occasions. So keep a watch on that. Stocks this morning, we pushed higher in very early trading. We've just done so again now, um, and you can see just, uh, that spike coming through. I don't know if there's necessarily been a, uh, a comment over the wires, but, uh, yeah, decent start for equity markets there, popping above their highs. Europe leading that way, and we just made a new all-time high there in the S&P of 3157. What's going to stop this market at the moment? Doesn't seem too much, perhaps. And, and that level we were talking about on, well, Wednesday, Thursday, Friday, the lower part of that range around 3141 has been incredible. So when looking at gold coming to that 1460 60 area, just be aware that, you know, even though it is coming down for the 4th, 5th, 6th time of asking, uh, well, the importance you can see here of just how good a level of support can be. So really waiting for that confirmation would probably be the best thing to, to go about here. So above the, uh, the previous all-time high, just coming down to retest that now, along with what was the, the previous high of the day in Asian session trade around 31.54. So keep a watch on that. Relatively technical, has to be said. So far this morning, 3150, a break of that early trade, retested not long ago, is actually a good level of support. But stocks just spiking higher, uh, in early trade. The euro, let's have a quick look. We had a big move lower yesterday, uh, yesterday on Friday, only to come and test what was the first retest of the, uh, the low of the 8th of October. Uh, and then that led to a decent push higher, almost the top end of the— well, yeah, there you go, top end of that new range. So be keeping a watch on this level for the week, 1.1038.5, 1.1040, uh, to cap resistance. And obviously that lower point where we did hit the low of the 8th at 1.0990, around that point as well. So Keep a watch on that lower timeframe. The pivot and just a bit above it will be significant with some good resistance there on Friday before the push through. So that coming in on the futures around 1.1022 and with the pivot below it, we'd also still pay some attention to what was the original low that we had back on Friday morning. So around there, around 1.1011. And of course you got the handle just below the S1. So for Europe today, those would be the points to be keeping an eye on. The top end of that range just above the pivot, and then round 1.1011. The pound this morning gapping lower. We didn't quite feel that gap, so again, something to keep an eye on. The lower part of the range today was also the lowest point of the sort of closing price that we saw on Friday, that coming in around 1.2914. So keep a watch on that as well. With any of these markets that are just getting squeezed in, always worth having on potential trend lines just to see how we would trade. So for the pound, you can see we're starting to get squeezed from both directions here, uh, so we'd have that on, maybe looking for a bigger move, uh, as well. While we did chop through it, I'd still have the 129 handle, the S1, the, uh, nice 6 ticks above that area of support, uh, from Friday marked up as that could be, along with this trend line now, quite a key level going into the middle part of the morning. And then obviously the American trade gap fill, keep a watch on that. And then this trend line as well for the pound. Polls are ultimately going to drive this market rather than data from either way. A quick look over at the Aussie dollar, just coming to test the top end of that, uh, the, well, top end of yesterday, Friday's trade. So keep a close eye on that. We have been in this downtrending market, so whenever we get this, can we find any decent trend lines that are worth having on? You can argue we have broken, um, that this morning. Very choppy, it has to be said, uh, and of course the volume not likely to really be there. The R1 along with the highs that we had back on the 27th look quite a key level, uh, as well. So keeping a close watch on that. The yen this morning coming under pressure as safe havens have done following that move in fixed income. So again, probably favoring this market really to continue its gradual grind lower. And if we put this onto the daily chart, you can see we're trading at levels not seen since— well, if we draw it up now, since the 2nd of May. It's a pretty key point actually where we're trading here, uh, for the yen. So definitely would be keeping a watch on that, uh, as well as this trend line which would come in. If we put this back onto a 60-minute, bang on at today's S2. So the trends from the previous lows of the year, keep a watch on that, see how we trade around there, uh, for the yen. Over at oil to wrap it, and we'll have a quick final look at the, uh, the equity space. Oil just coming to test the top end, uh, of that pivot. I've seen a couple of comments from OPEC coming through. OPEC discussing deepening current oil cuts by at least 0.4 million barrels per day, at least until June. Uh, there's two sources saying that. So keep a watch on the, uh, the pivot. A decent move lower in oil, it has to be said, on Friday, and in relatively low volume. Of course, the Americans most away for a long weekend. We broke technically, uh, this trend where you can see starting on the 25th, big move lower coming down to $55 on the dot. Also nearly testing the low of the 20th, and we've had a dollar push already since then. Keep a watch on the pivot, but if we do get above that, of course with these kind of moves, you know, you know, got to keep a watch on any of these previous lows that we've obviously broken through on Friday, and they could act as a resistance point. Not the worst idea in the world to put a little fib on that on it as well, see how we're trading the DAX. As you'd expect, the Euro stocks and, and, uh, US equities push— pushing higher. Worth keeping an eye just on that higher the day today, top end of that range. We did break out, um, in, well, the, the back end of a couple of weeks ago. However, we're still, you would have to say, in this overall choppy range. But that's not necessarily sure in moment and where it wants to go. As usual, any questions, please do let us know. We'll get the weekly strategy out as soon as possible, looking at some of these charts in a longer time frame. Just keep a watch short term right now on 1460 for gold, the previous all-time high for the S&P. Euro's got a few neat, nice levels just above where we're trading, and the pound for that potential gap fill, and oil around the but safe havens under pressure. The Bund on a key point, uh, and, uh, you know, the yen and T-notes a bit further to go before some real support does come in. Hope you have a good trading day and even better week ahead.