The Trading Week Ahead: 7th-11th October 2019

Okay, very good morning to everyone. Hope you all had a great weekend. It's Monday, the 7th of October. As per usual, Monday, look ahead for the week, not just for the session ahead. And as you can see, you've got the full agenda to the side of me here. If you would like access to this, it is available on my Twitter account. You you can see my, my handle just below my image. I'm gonna run through that, then Sam's going to come on as per usual. I've kind of taken off any of the technical analysis on my charts so he can go at them fresh and again look at some of the, the key levels both for the intraday and for the kind of medium term for potential targets, particularly equity markets of course, having seen quite a roller coaster last week, having sold off at the beginning of the week but then recovering and then obviously coming and closing on the high side following payrolls on Friday. But first off, before I get into the calendar and some of the news from the weekend, a look at the charts from this morning. Obviously China, Hong Kong closed, a few other closures as well overnight in Asia Pacific region, I think. So relatively quiet, leaning toward then the Dixie's pretty flat, not much movement overall in the currency markets, gold, oil, T-notes. Likewise for US index futures, minor gap down, but it's very moderate, nothing too major, and we're just sitting at above the pivot across all three major US indices for the moment. I'll explain why there's been a slight negative reaction in overnight markets. It's to do with the latest China-US trade talks, which recommence later this week in Washington from Thursday. Uh, the DAX actually, as I'm just literally click the start button, just broken through the pivot level and the futures and the overnight Asia-Pacific low point. So a bit of a run lower there in usual DAX fashion. But in terms of the overall kind of composition of the charts, I'd say it's relatively flat, slight negative from the overnight developments. Getting straight into it then, let's talk about the week ahead. As I said, I'll talk about the fundamentals, Sam will go on the charts. But for the, the morning, rather than go through this by data, just want to jump straight into that main story that's causing a little bit of apprehension in the market. And this is on Bloomberg, came out overnight, and it comes ahead, as I said, face-to-face talks. The kind of senior delegation from China is arriving in Washington. They're going to have talks on Thursday and Friday of this week. Chinese officials are signaling that they are increasingly reluctant to agree to a broad trade deal pursued by US President Donald Trump in meetings with US visitors to Beijing in recent weeks. According to this report, citing unidentified sources and people close to the discussions, senior Chinese officials have indicated that the range of topics that they are willing to discuss is has narrowed considerably. And so we continue to follow that, you know, ever since we had that targeted of the tech firms and the intellectual property stuff from, from the US on China. It really has switched quite dramatically, and kind of the concession now coming of being fairly passive from China seems to have ended. And importantly, and I think rightly so from a Chinese perspective, Donald Trump is obviously facing these renewed calls and process and procedure behind a potential impeachment. So if I was China, I definitely would follow the same tact. I'd be going to these talks making noises that, look, I'm not gonna make any type of concession at this point. You're the one that needs to do that. Because domestically, Trump, although I see an impeachment as incredibly unlikely, the point being is that he's under a lot of pressure at the moment in media and just managing the kind of public perception about how he's dealing with a lot of other things. And so it's a good time to press the president, I feel, if I was China. And so, so I don't find this particularly surprising, uh, and that I think is why— I think that's a view shared, at least at this point, by the market. I think that's why the, the reaction effect overnight has been one but as being fairly small. Definitely would be more interested when the US come in and you start to see the volumes pick up to see how they respond. So as we get to around 11 AM, 11:30 AM our time, when the Americans start to come into their desk, be interested to just see how the market reacts to this. And the kind of classic movement would be a little bit of downside pressure for equities, perhaps a flight to quality support for the likes of gold and the US 10-year. Otherwise, yeah, a quick run back to the calendar and then we'll run through the, the other headlines. In terms of the actual session today, it is relatively quiet. There's nothing really major coming out. We have had German industrial orders kind of fitting the narrative of late for the German economy, -0.6% against expected -0.3%. 3, so a touch weaker but no real meaningful reaction. I wouldn't say the DAX reaction is to do with that data. I mean, it's come after that and the euro is unfazed. I think that was just more technical. You can see the DAX has already pulled back after that technical breach of the overnight Asia low. So I think it's no more than that initial opening volatility. The one thing you'll see on the calendar though here for Monday is that Prime Minister Boris Johnson plans to meet his Irish counterpart this week. So let's go to the Brexit update. What is going on here? Brexit deal prospects fade as talks stall. The EU signals pessimism. So French President Macron and the Irish PM Varadkar both signaled that they want progress by Friday. The reason Friday is because time is running out before that EU summit which happens next week on Thursday and Friday, the 17th and 18th. And that's when that following weekend, i.e., next weekend, UK law would have it— that was passed in Parliament a few weeks ago— that Boris Johnson would then need to pen a letter to Brussels to ask for an extension. Now, this in itself has brought about a lot of contradiction from the Prime Minister, of course, of which I'm sure you're fully aware of. He wrote in The Sun newspaper on Sunday that we'll be packing our bags and walking out. But then he's also said that they'll obey a law passed by Parliament compelling the Premier to request a Brexit delay if he can't get an agreement by the 19th. So again, all of this is political posturing at this point. I'm sure there's going to be lots more to come. As I've said before, from a calendar point of view, I think towards the end of the week you'll start seeing some more meaningful market-impactful headlines to do with Brexit because of this, these deadlines that Europe are bound, bounding about, about trying to get a deal done by the end of the week. Boris Johnson himself has also self-imposed deadline, if you like, on himself of the 11th, which of course is this Friday. So I'd say there's some Brexit moves and sensitivity in the pound to come, but I wouldn't really for foresee that until the end of the week. All of this, of course, will probably lead to the biggest Brexit movement politically, if any, over the weekend, and then it's going to really heat up a few notches by the beginning of this time next week, because then that runs in directly in toward the kind of decision point of whether or not he's going to have to ask for that extension, whether or not a deal can be achieved, or or not. So I think this morning, as you can see from the charts, the pound is relatively disinterested by the developments politically over the weekend. I think that's right, but I do think you've got to kind of play this from the, uh, the timelines that you are aware of, of which is Friday and then the following week for that EU summit. And I'd expect then the type of movement and volatility and news flow to pick up around those affirmation timelines. Back to the calendar, other things then moving on from Monday, because that's pretty much it for Monday. So there's no major kind of high-ranking European, UK, or US data. Tuesday, a little bit different though. This time tomorrow we'll be looking for the updates for the Chinese trade balance situation. Obviously always important to kind of get a flavor for how significant the current economic phase is playing out in China, given the weakness that's been observed as the trade war has escalated. The German industrial production, obviously, that we've just seen this morning— well, that was industrial orders, industrial production tomorrow, excuse me. And then you get a, the beginning of quite a large sequence of Fed speakers. You remember last week, I think there was about 11 Fed speeches. This comes, of course, as the market has significantly repriced the prospects about the outcome for the meeting at the end of this month on the 30th of October, that now the base case is for a rate cut. Well, you get Fed's Powell, Evans, and Kashkari all speaking on Tuesday. Now, talking of Fed speakers, one thing I wanted to mention was overnight you've had two people speak. You've had number one, which is Rosengren, one of the dissenters, of course, from the last two Fed meetings, has been of the belief that they should not have cut rates on either occasion. So one of the most hawkish members of the FOMC. And Fed's Rosengren said sees slower growth but bullish on the US consumer. And of course, we know that that's been the general setup for the US economy of late. Kind of things like activity, manufacturing, production— these types of things have all been weakening fairly consistently, in some cases quite, quite significantly as well. But the consumer has held up to a relative degree. But if confidence starts waning, if the job situation starts deteriorating, it's only a matter of time, you would imagine, that the consumer does start to be impacted. But for the moment, Rosengren talking up the hawkish side of things. Um, Fed George then messed— or Esther George also followed and said sees no need to ease unless slowdown deepens. So I just thought it was quite interesting because what we've had over the recent weeks, as you're aware of, is this distinct repricing about the timing of when the Fed are going to cut. We always knew that they were going to cut. Um, however, given how bad things like the ISM data points— manufacturing, non-manufacturing, then ADP, then non-farm as well— um, has played out, particularly that really non-existent wage growth that we had in the payrolls report on Friday, um, the probability now of a rate cut in October, as you can see from this blue line, has radically changed over recent weeks, particularly last— it went from 40% this time last week to now up towards 80%. Um, so what I thought was quite interesting was that given how severe this has been, it almost feels like the Fed has deployed two of the most hawkish members in Rosengren and George just to temper back perhaps a little bit of the market its natural and what normally is the case overextension of just buying into data and kind of reacting or overreacting to the point of pricing it in so aggressively. So I'm interested to see whether or not that makes any difference. Of course, we've got these other Fed speakers. Not only is Powell speaking on Tuesday, he speaks again on Wednesday. We also get the FOMC minutes on Wednesday night. And so you get another Rosengren, Kaplan, Kashkari back on the, on the tape as well on Friday. So all of this of course comes into just really trying to align market expectations. And I definitely think that all in all it's likely to remain the case that an October hike— height— or cut, excuse me, still remains priced into markets. Moving on then, beyond Tuesday, Wednesday FOMC minutes, as just mentioned. Thursday, the main data point here I'd say is the US inflation readings, the other key component of course behind what decisions the Fed are going to make. Don't forget, it's not, it's not always— although there's no projections updated coming out in the October meeting, of course all of these speeches will be looking to kind of just build in the idea of what are they going to do beyond the October cut and this idea of the mid-cycle adjustment. And then probably one of the main macro forces that will drive markets this week is going to be on Thursday and Friday. And as you can see, that is the resumption of the talks in Washington between the US and China. But if the press this morning is anything to go by, and I still think, of course, this will remain the case, that they're likely to make very limited, if any, type of, uh, headway in regards to the trade negotiation. Again, I think it's going to be one of those where it's— they continue to just have the door open to having more talks in future rather than anything concrete being said or, or in fact done. That in itself then is subject to disruption from the fact that the Chinese have been quite aggressive here, almost indirectly through these Bloomberg sources, meaning that Trump typically tends to respond to this in one way, and that's he, he rises to the challenge. And the more that there's a breakdown foreseen by the market in this— and it hasn't been uncommon for talks scheduled for the end of the week to be completely called off at the beck and call of Trump, just saying, you know, it's off, as he tries to reassert his dominance on the negotiation. If that does happen, again, we go into that kind of renewed phase of the trade war cycle, and you could see renewed risk-off trade materialize quite, quite quickly. Um, the other headline I just wanted to point out this morning, HSBC shares— actually not a massive move this morning, but I know a couple of you guys do we look at the FTSE 100. So I thought I'd just point out this headline, which is that HSBC, according to the FT, are going to cut up to 10,000 jobs in order to slash costs. I did hear them talking about it a little bit this morning. I'm not sure if I heard it right, but they're talking about cost savings in excess of a billion pounds. So obviously meaningful, does follow on from the likes of Deutsche Bank cutting, what was it, 18,000 jobs a few months ago. I think Barclays, SocGen, they've all done the same— thousands of job cuts, particularly for HSBC, targeting in Europe, given the fact that, you know, they've long been pivoting towards Asia, where they generate almost 80% of their pre-tax profit in the first half of the year comes out of Asia alone. So increasingly more important and lesser so for Europe and hence just this restructuring in order to save costs is what's being, being touted this morning. Their share price, the initial open, obviously might have fluctuated since I last looked, since the initial opening price, but they were down negative by about a percent originally at the open. That's it really from me. I don't think I really need to really go on longer than what is necessary. The one thing I would say is, just as I'm wrapping things up, um, gold has just broken lower. Not sure if there's a headline that's come out just while I've been talking. I've obviously had the squawk off. Gold's just dropped fairly quickly in the last couple of minutes as equities have just picked up. You can see that kind of false break to the downside for the DAX. Again, absolutely nothing news-driven, certainly not on the back that German data earlier. Uh, you can see that wick extension just on the run through the Asia-Pac break, and now we're looking for the gap fill, um, looking reverse to some of the price movement from this morning. Uh, similarly, the, the Dixie just picking up a bit of traction now, up 1/10. So a bit of downside pressure just coming in as well on EURUSD and cable, uh, for the moment. But I guess that's a good opportunity now for me to hand you over to Sam and he can look at the charts and the technical levels of significance for the weekend. Thanks very much, guys.

Yeah, good morning. We'll have a quick look over that moving in gold shortly. And as the dollar just decides to strengthen this morning and just having a look at the charts from last week that we put onto the strategy report, and luckily for me, it makes my job a bit easier that everything certainly currency-wise, is pretty much contained within the same levels that it was on those longer-term charts from last week. And just to put that into picture now here with the, the euro, you can see relatively small range. Obviously that's nothing new and surprising for the euro, but, uh, it was contained very much within the levels we had marked up. So the top side, we were looking here at the low of the 24th, and once, twice, just could not get above. And Uh, looks like a great level to have got short on the failed, uh, push higher, shall we say. Obviously pushing to the downside, uh, the beginning of last week, only to recover, uh, but can't get quite above there now. And I would obviously look to have a couple of trend lines on from the top for any potential bigger push to the upside later on, but at the moment it doesn't seem like that's going to be the case, that low of the 24th holding price action. And with the pound, before we come back and look a bit more intraday on the, uh, the euro, you can see kind of similar. We did push higher, but then last week we just couldn't get back above what was the similar level, that low of the 24th. So really key point for currencies, the low of the 24th on the pound and the euro as well. Just looking here now on a 240 chart, you can see from those last few, uh, lows of, uh, the days or whatever, we're not far away from coming to test that lower part of that trend line. So certainly something I would look to, to have on there as this dollar is just strengthening a touch. So that could well come into play in about 10 ticks or so. So one for the pound certainly to, to have marked up there. And, and looking even lower time frame, 60 minutes, just to confirm that trend line. Let's just make it as perfect as it needs to be. There we go. You can see if that was to break, well then suddenly 123, lower Friday and Thursday, could come in relatively quickly from that point of view. To the upside as well, here we are, you know, also getting squeezed in. We pushed higher this morning only to be confirmed another trend line from the top that we just could not get above. So something has to happen here for the pound. Pivot and that trend line, key resistance trend line to the downside, important for support. Euro, as mentioned, just couldn't get back above 1.1049. You can see the two failed tests there. And with this dollar strength that we've seen, we're coming back to what has been an important level we talked about in Non-Farm and also each briefing just around this zone here, if you like, 1.1020. Uh, can't confirm a 60-minute break below, uh, so when we've been above, it has acted as good support. So here now, a key level to keep a watch on. And also, where would the third test be of the last couple of days? Well, pretty much in that, that, uh, that level as well. So both, uh, the euro and pound coming to key levels, and certainly one to keep an eye on with that dollar strength as Anthony Cheung, uh, gold there strengthening— I mean weakening, sorry, with the dollar strength. Uh, key level I would say to the downside here, looking at 1500, you've got yesterday's low, Friday's low, I should say Thursday's in the mix there as well, and also today's S1, a pretty important level. You can see just over the last 2 full day trading session. So that's where I'd have marked up there for gold. Of course, with moves like this, always worth just being a bit patient. You know, the volume is not really going to be there for, for gold for a massive move low without any retracements. So I'll be keeping an eye on some of the support from Friday, but of course, you know, this morning as well. So you can also see technically we broke this trend line, and this is now looking 5 minutes, but you can just see how well that was respected this morning. 1, 2, 3, and you get the break. So of course, looking at a retest of that area for a level of resistance. With gold coming lower, with the dollar strengthening, we have just seen equities just push to the upside. So keep an eye, of course, literally where we're trading now, a confirmed break maybe above here on the 5 minutes. We've got a minute left of, uh, 8— well, before 8:30, you could be you know, start to talk about the potential for a gap close. Obviously we gap lower, and this was a market where if we were looking right on the close of, of, uh, Friday as a bull, you'd be pretty happy to have closed back above, you know, albeit very, very slightly. Back above 2945 was, was pretty key. So if we can get back above there, uh, then I'm, you know, definitely a lot more confident about this market going higher. Of course, a lot can happen in the day and the week, and that gap fill just above where we're trading now will be important. If we can get back up to 49, 29, 49, 50 and close above there for the day, that would be a job well done for the bulls. Looking for the bears to take over and bring in the pivots again, you can already see those key levels to the upside, you know. I think you anything. If we may have a down day, I would say you'd feel pretty, pretty comfortable in, in this market moving lower. I'd say to the downside, 2926 is a pretty key level before we get down to some more important zones around 2914. They would be two levels of interest that I would have marked up as well. So stocks looking similar across the board. Let's have a quick look over how the DAX has started Monday morning. You can see it's actually tried, uh, tried to get back above to fill that gap. I'll be keeping an eye on the DAX if looking at US stocks as well. The fact that we have just, you know, trying now to close above where we open the week is pretty key. Of course, the first retest of that gap, we're looking for potential resistance there to come in. Quick look over at oil and you can see Friday we came to try and test what was a key level following, uh, the, the move lower in the week. We just couldn't confirm a break above, and that has been pretty important from a technical point of view. So I'd still have it marked up here, although we did spike through just pretty much on these highs here, which were the low that we had back on the first of the month. $53 and change to the upside would be a level to, to be focusing on. You can see just how steep we've come down as well. So I've been looking for some potential trend lines, you know, coming up from here, uh, only for that sort of third or potential third test. And that would be, you know, from this one anyway, looking around the R1, which is also then door for looking at the breakdown that we had on the second before that move lower. So some interesting levels for oil. Also from the low that we had, I'd be looking to have have that trend line on. Can we get a third test of that? And then that could obviously lead to a decent break lower. That also coming in at the moment anyway on where is the current low of the day, $52.58 for oil as well. Of course, as usual, we'll, uh, we'll get some of these charts out, uh, around midday in the strategy. For those that, uh, you know, just follow Bitcoin, I'm sure you know this already, but just having a look at this market. And you can see following last week's, uh, push lower, we're now trading below 8,000. Obviously it's open 24 hours, but on the futures not so much. And a big gap lower from 8,200, uh, 278% wise. You can see a 4.3% move to the downside. Obviously on that day, on the 24th, the important 24th, 15% lower, uh, see worth keeping an eye on there for those that do trade. It's coming under a bit of pressure as well this, this morning. As usual, any questions obviously please do let us know. The dollar is strengthening a touch, stocks looking for that gap fill, gold not far away from 1,500 again. It seems like a magnet at the moment while making that decision. Other than that, I guess it'd be a case of just being a bit patient. You've seen the calendar already is as quite a quiet one. Big things to come later this week. Hope you all have a good trading day and a great week ahead.