The Trading Week Ahead: 4th-8th Feb 2019

Okay, good morning, Monday, 4th of February. I hope everyone had a fantastic weekend. What we're going to do this morning, usual Monday look ahead for the week. So I'm going to focus predominantly on this calendar, as you can see here to the side of me. I'm going to talk through and isolate some of the key events of which will likely be the dominant themes over the next 5 trading sessions, and then I'll hand you over to Sam North, who will talk through the markets from a little bit more of a technical point of view. So first of all, just go through this briefly line by line, and what we'll do is we'll talk about some of these subjects a little bit more detail, and then we'll circle back to this before I hand you over to Sam. So first things first, it is of course Chinese New Year on Tuesday, so gong hei fat choy to all our Chinese listeners. It does mean that Chinese markets will be closed all week, and anyone who knows and has either lived out or worked out in China, it's a complete lockdown. Nothing at all happens. And so from a kind of key topic for markets that were certainly was focused on last week was that of the trade wars between the talks, negotiations between US and China. Likelihood is you're not going to hear too much, would be my guess, this week. And obviously that's important because we know that the Trump kind of trade truce that was in action, that expires in, well, just under a month's time now. So time really is of the essence, and really I'm not expecting anything to happen, at least from the Chinese side. From this week. So yeah, something to consider whether or not that will start to seep into investors' kind of fears in the, you know, an unresolved issue kind of sees the situation escalate once again, and, and that has a material impact then with the tariffs going up from 10% to 25%. But I would say we still got a little time to run before we get to that point. On the flip side, talking of obviously US politics, Donald Trump delivers his delayed State of Union address. From what I read this morning, that's going to be on Tuesday. What he's going to say in that, well, I don't think it really is going to be anything particularly new, groundbreaking. I'm sure we'll hear the usual things on things like the border wall, how he's dealing with the China issue. The kind of state of the jobs market, which obviously he's going to be loving following on from what happened on Friday with non-farm payrolls in terms of the job creation figure. So that's also to be aware of. But from a liquidity point of view, overnight, um, when China is completely on lockdown out of the market— don't forget, this isn't just China, this is Hong Kong, this is Singapore also impacted for the majority of the week— so it does mean that it's very quiet typically overnight. This has in previous years caused a few flash crashes over the years in terms of the lack of liquidity and automated systems kind of triggering off and what can be a quite flash spark movement overnight. So something to be aware of. Otherwise, in terms of today's session, a few things, um From an economic data point of view, it's relatively quiet. I'll give you some thoughts about what probably is the underlying driver for this morning, which undoubtedly is kind of still the Federal Reserve and this dovish turn and obviously the job situation we had on Friday. But from an earnings perspective, US earnings continues. We also get some UK FTSE 100 heavyweights this week, the likes of BP, GlaxoSmithKline, for example. BP on Tuesday. I think Glaxo comes on Wednesday. We've also got German carmaker Daimler reporting on that day as well. But it's going to be Google or Alphabet— they're going to be reporting after market— kind of concludes those tech heavyweights which we had as a focus from last week. Otherwise, Tuesday we get the various service PMIs coming out, the various different European nations, that also then including UK reading. Obviously quite interesting just given the overall context of the ongoing economic slowdown evident in not just for us but also mainland Europe. So as to what degree is that happening is going to be quite interesting. Wednesday, I mean, as you can see here, quite a few data points, but real distinct difference between this week and last week. Last week, a similar-sized calendar in terms of the number of events, but there was just so many key events that were happening last week, from central bank decisions, from key economic data from different geographic regions, the high-level trade talks, big earnings coming out. This week is quite a distinct change in a sense that there isn't so many key events happening. So very important when it comes to first thing Monday morning or Sunday night is to objectively review the week with a fresh slate. You know, it's quite tempting, I think, when you're new to kind of roll out the same mentality again and again. And sure, we've got to be flexible and adaptable to unscheduled events should they and when they occur, but at the moment The calendar as it stands right now, Monday morning for the week ahead, is distinctly more quiet, is what I'm saying, than it was in the previous week. So for the guys in Stage 3 who are kind of experiencing Trading Funds live for the first time, you've got to objectively analyze that and think about, well, you know, does the same aggressiveness apply? Does the same strategies apply? And so, you know, be, be mindful of that. Moving further forward, Thursday you actually get the Bank of England. I mean, no one's really talking about the Bank of England because ultimately, what can the Bank of England do? I mean, we're not at the point of changing rates. Absolutely not. Not with the unresolved issue of, of what's happening with Brexit, and irrespective of the fact that wages and things like that actually remain relatively robust at the moment. Uh, but we do get what could be quite interesting is the quarterly inflation report. So of the 8 meetings, this is one of the 4 of which we'll get the updates of when we can kind of get a view of, well, what's the Bank of England's 2-year horizon and what do they see for the economy in terms of growth and inflation and consequently their rate policy. Now the one thing I would say with this particular quarterly inflation report, yes, it has the propensity on an intraday to move the market and great volatility. But think about it— how much accuracy can these forecasts have? If I was an economist at the Bank of England, I'd basically be saying, well, GDP in the UK could either go like this or it could either go like that, and all dependent on something which is completely out of my control— that, of course, being the outcome of Brexit. Looking at some betting numbers of how the market's kind of viewing this, and the prospect of a no deal at the moment is kind of seen at around 10%. The most likely outcome at this point remains a kind of muddled-through with a May-amended deal at about 50%, and actually a second referendum then fills the gap of the remaining kind of 40%. So that's kind of where we're at at the moment. Point being is that I think any forward-looking guidance provided by the Bank of England needs to be taken with a large pinch of salt. Um, so Friday, let's have a look then. We've got, um, still China on holiday, um, and actually relatively quiet. I mean, we don't trade this at Amplify, but if you're trading the softs soy, wheat, corn, these types of products. Then you've got the crop report coming out on Friday. It's kind of the equivalent of, for us, what would be non-farm payrolls, kind of the main volatility guaranteed release for those products. That's coming out Friday. The rig count, I haven't caught up yet what the number was on Friday as I wasn't in on the desk that afternoon, but that's obviously something as well oil traders do look at as a kind of lagging indicator. So yeah, that's the week as a whole. Let's have a look at them at a few, a few different subjects. This is one, um, Fed's Kashkari in an article in Reuters this morning and talking about the fact that the Federal Reserve's decision to stop raising interest rates puts a fundamentally healthy US economy on track for further growth. So the pause keeps the US kind of on track. Kashkari, for those who should know, if you're, if you're not familiar with these names, then the FOMC board needs to be absolutely, you know, imprinted into your brain so that you can actually understand whether or not this is an expected or unexpected comment. Now Kashkari, as you can see here, for 2020 the ticks signifying the FOMC or the Fed members who have voting rights for this current 12-month period. And Kashkari is the most dovish member. So the fact that he's saying that the pause which we've seen from confirmed from Jerome Powell being patient, well then, that's absolutely to be as expected. One quite interesting thing then, we'll look at some equity charts in a second here is that we had JP Morgan come out this morning, and what they've said in a research note that they've issued over the weekend is that they said that 2020 might not be a year to think about recession. Basically, long story short, what their analysis is suggesting is that by the fact that the Federal Reserve have made quite a dramatic U-turn to sounding much more dovish and this idea of potentially on the balance sheet stopping— and hasn't got to this point yet, but they could do— is stop the process of quantitative tightening. So not only are you not hiking rates, you're also— you've stopped this process of, um, you know, some normalization, albeit slowly, of the Fed's swollen balance sheet. Then this should delay technically even nowhere late cycle of the long-term economic cycle, a recession. And so therefore, yes, it's inevitable at some point in the future it will happen, but is the market getting a little bit too excited about this impending recession? And in fact, it might not even be this year or next, but until after that, now that the Fed have become dovish again and have returned to supporting underlying markets with their dovish policy. So interestingly, if we look back to the equity charts here, so I mean, just looking at the S&P 500 this morning, absolutely not a lot at all going on. And I think that's a reflection of the news as we're discussing it. As I said, relatively quiet for the moment. If we look at a daily continuation, then I'll make this chart a little bit bigger so we can see it a bit more clearer. This is obviously those key technical areas, this this chart and what's been marked up remains completely unaltered from what the guys have been looking at over the last week or two. And that being that kind of technical break above quite a key area, that ellipse there with the kind of trend line, the, the fib retracement of the all-time high to the December low to where we are at the moment. And we remain above there for now, so technically still a kind of net positive. And I was looking at the NASDAQ as as well on a longer-term level, or excuse me, the Dow. And then likewise, this was looking back to 2016, going all the way through the support kind of level at the— towards the end of that year. This is obviously when we had the US election and that momentary blip. This was the Brexit move, and you can see how that played out again on that kind of trend line of support. And now we're still above there for the moment, so technically still quite positive I'll leave that side of things to Sam to go into more detail. But, you know, that move that we've had from the recovery, and really even not even from the base of the low printed on Boxing Day last year, talking about from here, which was the beginning of January low, to where we closed January, that was the best January performance for the S&P 500 since 1987. Such is the power of monetary policy to absolutely act as a catalyst to change investor sentiment that, you know, it's a phenomenal recovery that we've had. And yeah, and that does raise the questions then, is, you know, that what created this big sell-off here has now— this change of direction from Jerome Powell and his colleagues now allayed those fears? And, you know, do we remain supported going forward? It's going to be interesting. Earnings season still rolls on, but we've already really got a flavor of that. And at the moment, although earnings have been not great, well, if the Fed continue to be supportive in a dovish sense, well then that in turn, in step, gives people more confidence, and then corporates themselves, then as a knock-on domino effect, um, any weakness then is kind of contained because the fact that the central bank are helping in the short to medium term. Okay, well, that's the kind of equity look. Again, I'd say trade wars still critical really for the next couple of weeks. Not expecting much this week. Trump ended last week by saying basically they're doing very well, it was quote what he said. So again, no real definitive comments and no real progress, so it's kind of just put to the side for a short period for it, I'm sure, to return in the coming weeks closer we get to that deadline. All right, turning our focus to Brexit, you can see cable, you know, pretty sideways overnight, nothing really going on. There's a couple of comments in the weekend press. The main thing this morning is about Theresa May seeking a, quote, pragmatic solution to the parliamentary impasse. The weekend's press was centered on May's office denying reports in two Sunday newspapers that her advisers were considering a June election. The Mail said that they said the plan would be to delay Brexit but win Parliament's backing for a deal in April. And then renew May's mandate ahead of negotiations on Britain's future relationship with the EU. But any talk about an election, if you remember, there's plenty of Conservative members who would be very reluctant to go down that route for the sake of what happened last time. When, if you think about it, polls last time showed an overwhelming— what would have been an overwhelming majority for Theresa May, and hence she pulled the trigger on a snap election. Right now, well, at the weekend there was actually the biggest gap that has been in, I think, about 2 years, and the Tories had a 7 percentage point lead in the polls. But this is comparison to the 22.5 percentage point lead they had back in April of 2017. So the prospect of them calling a general election, I think, there's— I don't think there's much appetite at all for that at the moment, but certainly does remain one of the options. So all in all, not a lot's happened here, and I think that is a byproduct of the timeline. If you'll remember, it's basically Valentine's Day when there essentially needs to be, if not before, a meaningful vote held on whatever it is that this Brady Agreement and what Theresa May can get on any legal change to the, the wording surrounding the backstop. Europe remain of a stance of this is non-negotiable for the moment, which I'd say is probably typical negotiating stance at this point. I'd say give it another week, so when we're this time next week, I'm sure the intensity of Brexit news and the volatility in the pound will start to build up again. and that implied volatility will start spiking because I would imagine we're not going to make any real clear progress, uh, anytime immediately. It's going to be more again playing to the deadlines, of which that mid-February one is really the next one. Other things to be aware of, we did have some Australian data overnight. You might have read the headlines: Australian building permits see the worst 2-month dropped since 2009. To put it in context, you know, these are, these are quite frightening numbers actually. Building permits fell 22.5% in December from a year earlier after plunging 33.5% in November. And as you can see here, we haven't really seen these back-to-back falls in building approval dwellings in Australia since going back to the you know, depths of the financial crisis. So a little bit of weakness in the Aussie overnight. It has stabilized around its respective S1 for the moment. Remember, Australia heavily dependent— I mean, this is— I'll try to dig out some stats for you, certainly for the new guys. This is from the Australian Parliament, and it's basically an economic study. Obviously, we know that China is Australia's largest trading partner in terms of both imports and exports. So the point I was trying to make here is that, you know, as well as Australia trying to manage its own kind of softening in its domestic situation, obviously it's so intrinsically important how China's economy is performing for its knock-on effects, um, for Australia. And I was kind of looking at Well, where does— this is quite a neat website that looks at the individual breakdown of all the different components for Australia. And the top export destination of Australia is China. It equates to around $65.5 billion US dollars. As you can see here, mineral products is number one, of which then iron ore accounts for about 20% of that, followed by coal. And these are products certainly, uh, that are highly demanded by someone like China with large infrastructure projects and so on and so forth. So yeah, one to watch, I think, in the, in the kind of medium term. Australia's— yeah, this is one of the problems being so dependent on a neighboring economy that China at the moment is in a relative precarious situation, having seen such a dramatic slowdown over the last 12 months through this deleveraging and trade war situation. Let's hope for Australia's sake the government and central bank's commitments over in China are going to be enough to stop the rot, let's say, because the repercussions could reverberate quite negatively over into the Australian market. All right, that is pretty much it from me, so I'm going to cut it there and let Sam jump on and look over some longer-term levels. So in summary, quite a difference now than it was last week. Last week it was like treading potential minefields that could distinctly change, um, market direction, very sensitive to market volatility as well. You know, things from political situations with May's vote all the way through to corporate earnings data and so on. This week, very different. So what I suggest is a bit of a reset in your thinking and approach to the week ahead. As I said, only a couple of key things, but I'll let Sam provide that kind of technical framework for you now. So that's it. Have a good week ahead. Thanks very much, guys.

Yeah, thanks, uh, just on that, with, uh, it being the Monday after non-farm payrolls on Friday, historically quite a slow day anyway, so I wouldn't be looking to get in too aggressively today really. I think it's, uh, yeah, always the case at the Monday, uh, even more so with the the China week of holidays is going to be, you know, a quiet day today. Interestingly, the S&P is still, for me, looks quite bullish. I think we could have a little come down beginning of the week. Last two Mondays actually have been quite negative, actually. So it wouldn't surprise me too much to see us come down a bit more. You can see the, the previous sort of high that we had couple of weeks back, acts as really great support. So I think if you're— if you are bearish, you know, that is a sort of line in the sand to want us to get below, and then perhaps we can continue downwards. We're still above this, this trend line as well, and they're probably— good likelihood is that they're going to match up at a similar sort of time. So you've got your tests of the areas around here, and it wouldn't surprise me to see us perhaps coming to that point. And then it's, you know, obviously quite key from there, uh, to the upside if we were to have, you know, really positive week. I don't necessarily see us getting there this week of no new news, but you can see around 2800, a fourth test of that trend line for me would be obviously quite key. And then to the upside, you can see we had the high back on the 5th of December, not too far away, about 20 points for now as well. Another market which moved quite a bit recently is gold and has come down this morning, and it wouldn't surprise us, uh, or me anyway, to see us drift back lower, perhaps down towards the next sort of area. Well, very close now, just in the last few, few minutes really, of the high that we had back on the 14th of June. Quite a lot of resistance around that point. You can see I've just marked the spot there. Um, that would be the next sort of key point of interest. We've already had a sort of retest having broken through, and then if that's not to hold, 1300 obviously is a good sort of point in the market. And then to the upside, you've got, uh, 1326, which was the high back on the 14th of May. So I think this morning is a case of just being a bit careful. I think with the, with the pound, if I just put this back onto a 60-minute, same as last couple of weeks, and not necessarily wanting to get too aggressive on these markets. But, you know, pound-related, that is, uh, as, uh, Brexit comments will sort of lead the way for a couple of, um, the dollar-related pairs. And, you know, this, uh, gold here, just looking at this, you can see this trend line that we broke this so if we were to push up, that S1 previous low of the day I think would be one to keep an eye on as well from an intraday point of view. The pound, you can see, just drifting lower on that longer-term chart, still above a trendline break which would come in around 1.3040. Today's S2 would be one to keep an eye on should we get down there, but for now it looks already quite choppy and EUR, as we know, is stuck within a quite a tight range. Oil, if I just put this back on a longer-term chart, let's go for a daily continuation. The, the key level to the upside, um, let me just move this across, would be if we can push above, uh, 55.84 and then could be a quick run through to 58, I imagine. But it's really, for the last couple of weeks, been grinding higher. We had quite a good day to finish on Friday, having broken above a level we'd struggled to, to get above, you know, the few times that we did test it, that 4th of December higher. So we're now perhaps into a bit of a new range. And again, I do feel, along with S&P, that we do continue to push on but you've got some key resistance points coming up. And of course, with after the market, it's got the calendar here, but with the, the earnings that are, uh, coming out— if I just drag that over just to reiterate that— Alphabet for the, the US equities could be quite important, well, will be quite important. So I wouldn't necessarily want to be holding anything for the remainder of the day. A couple interesting, interesting points in the market on those longer charts. I know, um, a couple people looking at the Aussie dollar, uh, to potentially, you know, break lower, uh, overall, you know, this, this trend line here, you know, that would want to— that would need to go. And the trend that we have broken through as well, I think similar to New Zealand dollar, which, you know, an opportunity should we continue to push push on, uh, or continue to push, push lower to this point and break it, I think would be quite an exciting opportunity to get short back to those lows of last year. But for now, elevated on, uh, well, a couple of things, you know, the, the risk, um, sentiment improving, and the trade talks have been improving as well since that's what the back end of last year. We can see we did push on in the Aussie and, uh, New Zealand dollars followed through. But I do like the idea of a short should we break lower, if that happens. Um, but anyway, we'll send out the, the strategy report looking at a few of these charts in a bit more detail. And then as usual, any questions, please, you know, do let us know. But we'll be on the, on the chat throughout the day. So if I don't speak to you for this morning until the strategy report, I hope you have a, a good day ahead of you.