The Trading Week Ahead: 7th-10th May 2019

Okay, very good morning, good to be back. Tuesday, 7th of May. I hope everyone had a great long weekend if you're based in the UK, and congratulations to Harry and Meghan and their baby boy, of course, which came yesterday afternoon. But straight into things, and obviously we're going to do like a week ahead, a look at the major events coming up, but I definitely need to just quickly jump on straight away, and you can see We've had a little bit of a pop here in the equity futures space. So looking at the center charts here, you've got the DAX on the left, NASDAQ center, and the S&P 500 on the right-hand side. And you can see quite a, an aggressive bid tone in the last candlestick. Likewise, downside in the US 10-year, a little bit of movement as well in the dollar. So we've just had some breaking comments come out about 20 minutes ago where the Chinese Vice Premier Li Yuhi is set to go to US for trade talks. That's going to be on Thursday and Friday. Now, that was always scheduled. However, his attendance in Washington for these latest negotiations was somewhat in jeopardy with the big story which broke over the weekend, which was talking about a breakdown in these trade talks. We've kind of— we've talked about this a lot. This was the one big kind of potential tail risk for markets, which have otherwise been relatively calm and stable and have helped this equity market, particularly in the States, get up to record all-time high territory. This was always going to be the risk factor globally. It has ramifications across the board, across asset classes, and certainly this latest comment from the Vice Premier in China that he will be going forward with his team heading to Washington for the second half of this week, just being warmly received this morning by the market. So a little bit of a bid tone in the equity space just on the back of that comment. But otherwise, that probably is the major story. If you were out of the markets yesterday, then we had quite an aggressive— you can see here— gap down in US equity futures. Normal day of trade actually in the US yesterday. However, the UK obviously were out for the holiday. So gap down, and we're just seeing a little bit of recovery here, but we did fail to close the gap yesterday. So any further appreciation, this equity market would just be keeping an eye on that previous close, which came up around the 2950 space in the S&P. But Sam will look at those charts in a second from a technical point of view. Let me just get you up to speed on the news and what exactly has been going on. So summary here on the trade talk side And then we'll look at the calendar as a whole because this is the major story, is that US says it will raise tariffs on China after they renege on their vows. The Trump administration accusing China of backpedaling over trade. This resulted in a flurry of tweets, of course, from US President Donald Trump at the weekend. Essentially what's been happening here is they said, the US, that at this stage about 90% of the pact had been finalized and But China, in the latest draft text that they submitted to the US— I believe this was on Sunday— wanted to reopen areas that had already been negotiated. And as such, Trump fired back and said, well, we're gonna raise tariffs on $200 billion of Chinese goods to 25% from 10%, and that's gonna happen this Friday. And if you remember, that's the kind of tariff threat specifically to that amount and percentage that have been put on ice and kind of kicked down the road, put on a temporary freeze for a couple of months actually since it was initially threatened. And that of course has had to be repriced into the market as a potential risk now to the conclusion of these talks. So one thing I would say, and I actually had, you know, my brother called me up as soon as he saw this headline actually on Sunday, was like, well, what's the play here? How do I get in on the market on the back of this headline? Because it was pretty evident that the market would see a knee-jerk reaction, certainly in the negative sense. And my kind of comment to him was— and I'll leave Sam to look at the levels— but I was just thinking, well, just a better level to get in long again as far as the US equity perspective. Um, whether or not this deal gets done this week, I think it's beside the point. I think ultimately here there's too much for Trump to lose in such a politically important period that we're heading into as we come into the second half of this year. He cannot afford for these talks to fall down. Now, that doesn't necessarily mean that he needs to conclude and get a deal done by this Friday. I don't think that's the case, but I do think that these are, in my mind, relatively idle threats where he just wants to continue to remain the aggressor in these talks. There's a lot to be said that the strategy of wagging the stick has paid dividends thus far, and since he's backed off that, let's say China have, you know, the pace has slowed, you could say, slightly. And so I just think that this is kind of back to the normal approach of which he's adopted so far and has had some success with. So I actually think that Although this is quite a big headline and definitely a big development for the market, I do think this will be controlled in a way by both parties where the necessary progression will be made. But I do actually see this being over a slightly longer timeframe rather than getting a deal signed, let's say, uh, concrete concluded by the end of this week. I'd imagine it's still going to take a couple of weeks And remember, they'd still committed to the signing of the deal by the end of the month, so there is still a little bit of time on that as well. So yeah, that's my view on that. One thing that obviously has happened on the back of this is oil prices got hit fairly aggressively yesterday. I think the fall in its total marked about a 3% decline, and obviously this Chinese development does impede the demand side of the equation when you're looking at crude for sure. And it starts to heighten, of course, this kind of the concerns about the global growth, the kind of prospects for the global economy to that, that regard. But a couple of other things here that promoted quite a severe turnaround in crude. And if you actually look at your WTI chart, although we gapped down and sold off at initial opening yesterday, we have rallied back throughout the course of yesterday's session. Now the major thing on that was obviously this— the exemption of these waivers on the Iranian sanctions has been quite key. Saudi Arabia and other producers talking about filling the gap of the loss of Iranian barrels has kind of— has to a certain degree weighed on prices. In addition to American drillers have now boosted output to record levels. We've seen in the US north of 12 million We've seen nationwide stockpiles in North America now at their highest since September of 2017. And then you've had this latest deterioration in the trade talks. So definitely this one-dimensional, what it felt like, supply risks outweighing heavily those other factors has kind of evened out a little bit. But again, what caused the reversal yesterday was that the US has sent an aircraft carrier strike group and bomber force to the, to the region in the Middle East amid these rising tensions with Iran. Because you remember, um, the President Rouhani has threatened to cause problems to the Straits of Hormuz, which is probably the most singular important choke point for the seaborne traffic of oil in, in the world. So Yeah, the hostilities and kind of tensions in that region are still simmering away and growing, particularly the presence of, um, kind of large US military forces in that area certainly heightens that prospect. But I'd say we found quite a good even ground now with the fundamental mix at the moment, and so the trade talks I think definitely will need to be monitored as the week goes on. A few other things to have a look at. I'm gonna jump to this, uh, again, Sam will look at the, the technical levels, levels from here on out if you're trading this asset. But let me just show you, we had a very aggressive spike here in the Australian dollar overnight. If you will remember, it was the highly anticipated interest rate decision from the RBA overnight. Rates currently at 1.5%. The market was priced pretty much 50/50 on what could possibly happen today. Now, we have seen this idea of, you know, do they need to wait in response to the fact that really, although they've got reason to potentially keep rates on hold because of the inflationary conditions that could materialize from the, the kind of improvements in the labor market, there has been deterioration, of course, in the housing market, weak household spending, sharp slowdown in economic activity, high debt, kind of stagnant wages would have given, and in particular the inflation being soft, a lot of ammunition for people who are calling for a rate cut. And so given it was 50/50, you've got a very aggressive response overnight in the market to the the fact that they decided to keep rates on hold. So a lot of what they're talking about here is, um, unemployment now is the key to the outlook going forward. So Lowe, who's the governor, said that basically the board recognized that there was still spare capacity in the economy, that a further improvement in the labor market was likely to be needed for inflation to be consistent with their target. So again, given the spare capacity there. They need further of that to tighten in the labor force in order for it in the future to equate to these inflation conditions that would then warrant the tightening phase. So rates remain on hold as they have done, uh, really for, for the governor here since he came into the position. Um, it's been that way since kind of late 2016, getting ever closer though to the prospects of a rate cut, you know, in terms of market pricing. Definitely the RBA and RBNZ are the most leaning in that direction for sure. And also as well, not being kind of fazed by the fact that you've got political elections taking place in the coming weeks in Australia. And so obviously not getting tied up in toward that, you know, that kind of side of things on the political angle. Final thing here then is Brexit. What's been going on? Well, nothing new really at all from where we left things at the end of last week. Theresa May's officials are drafting a new law in preparation of a Brexit deal between the government and the opposition Labour Party. As I read at the weekend, they are due to be meeting May and Corbyn today. According to people familiar with the matter, new clauses are being written into the withdrawal agreement bill that would provide for a customs union style agreement or an arrangement guaranteeing that there are no checks on goods crossing the UK-EU border. So pretty much still at the same thing at the moment. Talks set to resume of course today. If you'll remember, it was last week there was a lot of emphasis on the fact that this was kind of the last chance saloon for them to get a deal done in time for then the necessary kind of legal part can be concluded in terms of this re— writing of the withdrawal bill so that they don't have to take part— Conservative Party and the other politicians— in the European elections at the end of the month. So definitely something to keep an eye on. And the usual suspects on Twitter: Paul Brand, Laura Koonsberg, Peston, and the likes. Just reverting back then here to the, to the calendar, a couple things to be aware of then. We've already had the RBA interest rate decision. We've We've actually already had the German factory orders this morning. Industrial orders rose by 0.6%. Market expectations, though, were looking for a gain of 1.5%. So although not negative, it was slightly shy of expectations with the German factory order number. Not too much of a reaction in the market. I'd say overall, a little bit of dollar reaction to the, to the China developments has been the main kind of influencing in fact, this morning thus far. Otherwise, as I've got highlighted here on the Tuesday section, UK Prime Minister Theresa May is going to meet with Corbyn for these cross-party talks. So do keep an eye out for that. Otherwise, in terms of the actual calendar for today, relatively quiet. You've got the European Commission publishing their economic forecasts at 10 AM, so it could be quite interesting, but we kind of really know the status quo at the moment with the, the general forecast and outlook for Europe, which has been relatively lackluster of late. So likely to follow suit in any updates on growth and inflation. Otherwise, in the afternoon, you've got JOLTS coming out the US, you've got the Ivey PMI from Canada, and then the oil inventory data coming out, the APIs. That'll be later on this evening. Speaker-wise, you do have Bank of England's Cunliffe, Fed's Kaplan, Kwal, and Haldane all speaking as we go out, go on throughout the day. Moving on to Wednesday though, when we come in this time tomorrow, you've got Chinese trade data, always going to be of interest, particularly when we're in the context of the, the kind of real pressure points now of whether or not they're going to get a deal done and real progress made on the trade talks So Chinese trade imports and exports will be looking at with great interest. So the Vice Premier of China arrives in Washington Wednesday, talks will be underway on Thursday and Friday. So it could be an interesting end to the week for sure, depending on how they play out. Other things on Wednesday, you've got the ECB minutes, you've also got that RBNZ rate decision. So as I said, very much similar case to the RBA, will they hold or will they cut? Either two kind of 50/50 options at the moment. Also, if you were looking at the emerging market currencies, the South African election is also happening on Wednesday, which a lot of people have been talking about in the EM space. Otherwise, Thursday, more Chinese data, this time on the inflation side. You've also got Fed's Powell on the docket with Bostic and Evans, a couple of Fed speakers. And then on Friday, you've got UK GDP comes with a bit of a data dump from the UK. You've got industrial manufacturing production, trade balance, business investment, construction output, but importantly GDP from the UK on Friday morning, all at 9:30. And then one of the most important US data points, you've got US CPI coming on Friday afternoon. All right, so that's the kind of roundup from, from my side. What I'm going to do then is hand you over to Sam. He can get you up to speed with what we're looking out for from a, you know, kind of broader technical levels of interest. So I'll hand you over to him now, now, and I'll see you in the chat room. Sam and I will issue a, a full kind of research report out to you guys as well later this morning. But take care, and I'll catch up with you later on today. Thanks very much.

Hi guys, good morning. Hope everyone had a, uh, a good bank holiday weekend. Uh, we might as well start with the Aussie dollar. As you can see it on the, on the chart here, and, uh, like I mentioned, we had a decent spike off the, the decision to keep rates as they were. Can that sustain? I think you'll be helped if you are the, the idea that it's going to continue to go higher if stocks and trade war remain positive off their lead this morning. Okay, it's coming to a bit of resistance there as we speak. In terms of key levels to be aware of today, I think if we were to get back above that high, you can see there's quite a lot of resistance going back to the back end of April and then into the beginning of May. And then to the downside, you can see why we may just find a bit of support should we come back down to this the, the R2, as it was also the high back on the 2nd, uh, and then almost the, the 3rd of May. So a bit of a range perhaps to be aware of. The highs just above at, uh, 70, uh, 62, and then 35 back down to, to the R2 if it was to come back down. New Zealand dollar, um, you can see spiked the same but has already reversed more than half of that, and it's actually just starting to get squeezed in. So for those that do trade, uh, the Kiwi, you can see probably worth just having this on here as we just, uh, come back down to the pivot where we found a bit of support earlier. But if the Aussie isn't to go, this might be, well, a shorter-term opportunity to see a reversal in, uh, in this pair. The pound has continued, uh, its positive last few days, really that trend line that broke at the beginning of last week. Since then, we, we have continued to go higher. It was a really good day back on, uh, on the Friday as well. Levels to be aware of just above where we're trading— if I just lower this time frame down, you can see, uh, quite a key zone from yesterday just above where we're trading on the futures, that the top end of that really sort of around 131.70, and then the high of the day at 60. So sort of a 10-tick zone, if you like, a bit of resistance to get through. And if that was to, uh, obviously break through, then suddenly you are looking at Friday evening levels as well. To the downside, while I think this market is favoring a push higher, probably worth having on a bit of a trend line just to see if we do come back down to get that third test and then go from there. The previous low that we just had around 7 o'clock was also not far from what was the high of the day. So a break of all of this would be where I think sellers could get relatively interested. But other than that, key resistance zone just above where we're trading now. But sentiment, I think, for the meantime favors the upside. The euro, which started to— if we put this back, uh, on the 60-minute, the back end of last month, we started to have a bit of recovery before before breaking lower, uh, on, on the, on the 1st, which of course was, um, the FOMC day. We almost broke through that R2 and key resistance going back from the 23rd, only to push lower. Are we starting to get a bit of a reversal here? Again, worth keeping an eye on. It's really going to have to get through, uh, the high that we had back on the 2nd, but these lows are getting higher. So worth again just keeping an eye, should we come back down to test any potential trend lines. For now, it's, uh, not the case that we've really had that third test. You've got 1, 2, potentially the third coming in. And likewise with that pound, just seeing can we get a, an area of support, and then anyone that does favor the downside, a break of that could open the door to a further push lower. But key resistance just above where we're trading, it breaks through that, then suddenly looking at the, the pre-FOMC lows as any areas of resistance. But this market, like with the pound, just recovering, uh, from its, uh, losses from this year. Gold, a market that was, was hanging on for, for dear life, uh, last week. And we had a break of that trend line that went back from the, the low of last year. Let's just put that on You can see decent recovery after a false break. There was also the, the Fibonacci level, 50% from that low to the high that we saw. You can see just how well that has held. Key level remains here to keep an eye on, those previous lows that we had back in January and then March and then April, and then the retest not too long ago on the 26th of April as a high. That on the futures coming in at 12.90 or thereabouts. And again, to the downside, keeping an eye on that trend line, uh, as a chord where we found really good support back on Friday for that push higher. More intraday, you could argue that we just need to— before it gets interesting— break out of this mini range that we're in. Found a bit of support there last night around 12.81, and the high is just a bit above. So probably worth, especially considering the volume is going to be low this morning, uh, for gold, waiting for a break either way, uh, to really get a confirmation where this market could go. That trend line, albeit quite choppy from Thursday and Friday, coming in around the S1 as well, uh, so worth having that still marked up on the chart on the, the longer term. Oil, you can see, recovered after that gap lower, uh, If we do have a continued push higher, it's only going to help S&P a bit more. Last week we saw, well, not the same price action we saw on that Friday, but still a decent push to the downside overall. Where does this market go from now, I think, will be obviously key for equities as well. The range this morning relatively short. That gap has almost been filled from overnight yesterday, uh, or this this overnight one, I should say. Uh, before, let me just have a look. Yeah, I mean, that trend line there was looking at a bit of a false break of that. Not looking too exciting at the moment, I would say, for oil. So again, probably want to focus more on into the afternoon as we're coming back where we do get towards yesterday's high, back into the middle of that range that we had from yesterday. So I think probably worth for oil more focusing on it in the afternoon. But as a, as a guide, if we were to maybe break the, the high that we've got of the day, then you would get a bit of a relief rally. And then $63 could be the target, along with the high that we had on Monday. Those lows just getting higher at the moment from today. But overall sentiment does feel, uh, pretty mixed after the last couple of weeks has come to the down, uh, move more more often than not. Um, so I don't know, I'd just be a bit careful with oil, uh, on a medium-term basis, shall we say. Uh, S&P or equities in general, uh, that decent gap lower, none of them, uh, NASDAQ or Dow Jones have filled that yet. So where do we go from here? Well, the, the low that we had yesterday, you can see, was a really nice technical area. I mean, whether you could have called the exact dip on this. I think you'd have to be pretty brave, but we did have quite a bit of support going back to the middle of— midpoint of last month, and that's held pretty firmly. And even if that had gone through, then there was obviously quite a lot of these lows where the buyers were taking over previously. I'll just move it above the camera, which would have attracted some more medium-term buyers. Uh, where do we go intraday? Well, just above this high that we've just, uh, broken to now. You can we did have a bit of resistance, uh, support late last night around 9 o'clock. That's going to be key, still is this morning on that first test, acting as a good level. Above that, the R1 will come into play. And really, if we get through all those, then the, the gap you would imagine around sort of 2950 on the futures will come quite quickly from over the weekend. To the downside, 2919, the previous high of the, the morning, or maybe just a bit below that, 29 19 and a quarter will be an interesting support point to keep an eye on should we drift lower, uh, over the coming hours. Also worth having on any potential trend lines from those lows if you are looking for this market to drift lower. You can see worth having this on, which will come in around the low of the day in the pivot as well. Quick look at the NASDAQ and Dow Jones. You can see similar price action to the S&P but didn't quite again fill that gap. We have just come to a similar price point where we found a bit of support late last night before breaking through. That's offered a good area of resistance now, and similar for the Dow Jones. So worth keeping an eye on those three at the same time. If one gives the lead that it's going to go and break through that resistance, you've got to imagine the others are going to follow through as well. Quick look at the overall picture. Let's bring this in. Down here. You can see the, the dollar relatively flat, if anything down a touch. So worth keeping an eye on any trend line in that euro, for the euro from yesterday's low. The pound, I think sentiment-wise, uh, other than that resistance zone just above, you've got to favor the upside. Oil, a bit more mixed. Uh, S&P, like I mentioned, probably was, you know, a good opportunity to have got long again. So those resistance points from late last night worth keeping an eye on. And gold trendline and $1,290 to the upside would be pretty important. Any questions, as usual, please do let us know. Promises to be a pretty interesting week. As you can see yesterday, volume-wise was always going to be the, the lower one, but we're coming back into the market now where it looks to get a bit more interesting. I hope you all have a good trading day and week ahead.