The Trading Week Ahead: 8th - 12th July 2019

All right, very good morning to everyone. It's Monday the 8th of July. Hope you had a great weekend. Usual Monday briefing, so a bit of a combination of me updating you with some of the major headlines from the weekend, but also thoughts and views for the, for the whole next 5 trading sessions ahead. First things first, before I— we overview this, this calendar of events, let's have a look at how the charts are looking this morning. And you can see immediately on the center left here, the DAX future off to a positive start. We did see a very aggressive rally actually to close out the initial dip after non-farm payrolls in US index futures. The S&P, I'll show you in a second. Effectively reversed the entire move. Not only that though, but you've probably caught wind of the news in regards to Deutsche Bank this morning. I'll quickly show you the headline. This was it over the weekend: Deutsche Bank CEO slashed 18,000 jobs. I think we're looking at numbers of around 100,000 as a workforce, so obviously sizable. More often than not, a share price responds quite well to these kind of cost-cutting restructuring type headlines, particularly of this type of magnitude. Now, just to give you a, again, bit of context, 18,000 job cuts at a major investment bank, that's about the most since the global financial crisis hit in 2009 that we've seen, you know, such a severe cut in one go. So complete reshaping, exiting its equity sales and trading business, also cutting jobs, I think, in their fixed income department and moving more, pushing in towards commercial banking. I think I understand from what I read this morning. But point being, Deutsche shares up initial market open up just over 3.5%. So that's probably just helping a little bit as well as this overall recovery that we did have, more broadly speaking, late in the game on Friday after initial payroll sell-off in global equities. So Yeah, back up to Pivot. As I said, this was the headlines I just showed you. So, um, you know, substantial job cuts helping elevate and cut costs in the interim period for Deutsche. Otherwise, looking at the other charts, it's relatively quiet. Dollar index is basically flat. So really not much movement at all in the major pairs. And just to re-emphasize, obviously the day after in terms of trading sessions. Non-farm payrolls is typically quite quiet, uh, tends to be— then the market starts to kick into gear towards midweek. And as we'll discuss on the calendar, definitely midweek is where it's at because Fed's Powell is going to be speaking a very important speech which everyone's going to be looking at very closely. But here is the, the S&P 500, um, taking in a bit of a broader context of really most of the month of June and July. And really just focusing on this, this last week's price action. We obviously had the— this time last week, the G20, which finished with a, with an upbeat tone given the fact that, um, the escalation, if you like, was put on ice between the US and China. However, we reversed only to find, you know, the, the gap fill is a technical point of entry then for the rearming, if you like, if you're an equity bull, of those longs and the eventual push-up to what is now the all-time record high territory, which of course breached the 3,000 level. Period of consolidation last week, and then of course we had the, the finish, which was, you know, this is what I meant by, you you know, look at that price action. Initially we sold off, obviously payrolls super strong on their headline. People were, were somewhat of a downside bias given the weakness and the large miss in ADP and some of the other employment indicators. Markets sold off as the prospects of a 50 basis point rate cut were taken off the table. But, you know, just look at that ramp into the close. I mean, it was— you can hit that low which is now going back, a trend line forming over the, the best part of last week. As soon as Europe left the market, US just absolutely came right back in and just picked the market back up from its lows to close, pretty much reversing the entire payroll-inspired sell-off. Important point, I think, there, and the reasoning behind that is because after the initial unwinding of this 50 basis point rate cut, you know, the Fed is still going to cut as far as the markets are concerned, and likelihood is they're still going to cut multiple times. So it's kind of more a function of unwinding of that more dovish bets in the market, uh, and then back to reality, uh, which is, you know, ultimately the Fed is still in a very dovish mindset. That hasn't really changed what they're going to do as far as the 31st of July, which is the next, uh, interest rate meeting. Um, otherwise elsewhere, T-notes have held on to a bulk of the, the payroll sell-off, but as per the equity move have come up, back up, finding some resistance at the moment around pivot this morning. And looking at oil, relatively quiet sideways range to, to recommence trading for this week, as we'll see a couple of headlines on Libya and Iran just to be aware of, but nothing really jumping out that's going to be an immediate market mover in that sense. So let's have a look at the calendar. And just touching upon the main highlights, what I really want to emphasize is Fed speakers. And particularly for anyone new to markets, you'll see two bolded underlined events that I've got on Wednesday and Thursday. And Wednesday is by far the most important because what we get here is basically two testimonies from the Fed Chair Jerome Powell, uh, the first one of which is on Wednesday when he testifies before the House Financial Services Committee. So this is here. He will then speak again, testifying to the Senate Banking Committee on Thursday. Now, so there's two big platforms here where outside of the regular, I would say, 8 interest rate decisions that come from the Federal Reserve The testimony is often used as the kind of platform to vocalize to the market what it is their intention is going to be with future monetary policy. And now is more important than ever because we're looking for confirmation of, is that payroll number and the repricing of that threat of a 50 basis point cut— are we right to have priced that completely off the table? We're going to find out pretty much this week. And the reason why I've got here bolded the speech that Powell will give to the House and not the Senate is because basically he speaks— this is an event where the central bank reports back to Congress, but Congress obviously has two chambers. And so he basically repeats the same opening statement. He just then takes questions from the different financial services committees of both chambers. So essentially the Wednesday one is the market-moving one. The Thursday one is largely a repetition of the statement he'll give the prior day. So again, Wednesday is going to be really important. That will be the event of which the market will build up to, because then we're awaiting, you know, what is this latest stance of the Federal Reserve. Not only that, the other important thing here is you're going to have to look out for Fed's Powell is actually speaking, front-running that event alongside some other Fed speakers on Tuesday. You've then got a whole host of Fed speakers on Thursday. And, you know, just another point to be aware of here, you can see you've got Bostic, Barking, Qualley, Kashkari, Williams all speaking on Thursday. And as I said, Wednesday is the big Powell speech. Now, this is quite classic central bank management of where, just like you'll see with a big interest rate announcement, they usually schedule in multiple speakers after the big event. This is almost like a protection policy just in case the market misinterprets or the Fed wants to realign market expectations. This is classic kind of Fed way of doing this. They will already have scheduled in a number of keynote speakers the day after that announcement from Powell. So again, Fed speakers alongside that event are going to be really important, and I think the main market event of this week that will define markets' kind of general sentiment and direction. Other things that you're looking out for— that's not it from the Fed either, because you get the Fed minutes on Wednesday night. And if you remember, this comes after the, the June meeting with the latest summary of economic projections. And you'll remember that SEP where the rate forward-looking expectations dip and then recover over time. And it was quite an unusual trajectory here because central banks tend to go in a rate hiking cycle or rate cutting cycle. Very rare to see this idea of rates going to drop into the end of 2020 and then rise into '21 and beyond. So, you know, the— how much external headwinds or risks around trade wars and their thinking behind this kind of unusual strategy of rate policy is going to be particularly interesting. That will be Wednesday night, Fed minutes. You also get, in terms of minutes, the ECB minutes, which is going to be another one the market will look at closely, just given the economic situation developing in the eurozone. And then on Friday, you can see down at the bottom, you also get Chinese trade balance and of course import-export numbers, trying to ascertain the severity of the, the repercussion of the ongoing trade war with the US is having on the local economy is also going to be of particular interest to traders. And the final thing from a data point of view, again, what's going to really seal the, the prospect of what the Fed is going to do at the end of this month with rates is not only have you got important communication from Powell and others, you've also got US CPI coming out on Thursday. And of course, that's one of the main metrics that really the Fed are closely locked in on at the moment to define what it is, what action they're going to take. So that's the kind of week as a whole. A quick cycle through then of some of the headlines, and I'll hand you over, uh, for Sam to look at the charts more specifically. But this is the, uh, the impact of what you've seen. These two lines are defining the blue line, the possibility of the Fed cutting in July by 50 basis points the pink line, uh, would be by 25 basis points. So as you can see, payrolls causing the latest kind of most severe immediate repricing of those expectations, i.e., uh, 50 basis point went from a high 20% probability to now, as we'll see, it's circa 5 to 6%. And then likewise, that's shifting into near on 100%, 95% probability now of 25 basis point rate cut. Um, so again, just to be clear, it's not that the payroll number is enough to mean that the Fed are not going to cut rates at all. This is just about the severity of the cut in itself. So again, 94% for a cut of 25, now just 6% for 50 basis points. So other things that could shift the needle here, of course, will be Jerome Powell and the CPI data in particular, alongside those other Fed speakers. So by the end of this week, I reckon, all things being equal, my feelings have always been the same. I think it would be inappropriate for the Fed to go so big as a 50 basis point rate cut, given the lack of general room for maneuver they have with rates being only at 2.5%, comparative to other cutting cycles when interest rates have been double, as the financial crisis reaction, or even triple if we go further back in time, you know, to things like the dot-com bubble and so on. Um, okay, a few other things to be aware of. I mentioned Deutsche earlier. One website I wanted to just mention to you guys, you might not be aware of this, but it's a company called Lang Schwarz, um, who are a broker. But the reason why I'm showing you this website is because in pre-market they have this little box of top and tops and flops. So a lot of you might hear on the squawk or you read in the press. So this morning there was a Reuters article saying Deutsche Bank in pre-market are seen up about 5%, and you might think, well, how do you actually get hold of these pre-market indications? So the pre-market generally comes from, from brokers because they're the ones who are kind of satisfying this bid-offer spread in pre-market activity. So Lang Schwarz are the one for Europe. And so if you ever did want to check after a big piece of European-based equity news, just go on to Lang Schwarz and check the tops and flops, and you'll see Deutsche and their pre-market activity ahead of the cash open on the Deutsche Börse at 8 o'clock. So you can start checking this from kind of 7 o'clock, and you'll be able to get a decent indication of how their shares are going to open. As I said, up pretty sharply this morning. Other things to have a look at, um, nothing's really changed on the general bigger picture, I would say, on the global growth story. Very quiet on the trade front, of course, between the US and China because that, that ship has kind of sailed in terms of the hierarchy, I think, of, of real market threats. If you would, if you were looking at this week from news top-level macro perspective, the trade war is definitely dropped off the top mantle, if you like. The top of that is now Jerome Powell's testimony and then some US data to follow, i.e., the CPI. The other big picture here is the idea about the health of the global economy. The PMIs obviously have been indicative of a slowing down, and we continue to see that replicated in other economic measurements. This was overnight. Japan's machine orders dropped sharply in May amid this ongoing global slowdown. So really nothing new, but I think it was a miss of a fairly substantial magnitude, casting doubt on the strength of capital investment over the coming months. I mean, that, that really sums it up, not just for Japan, but I think for the entire global economy. And this is what can become somewhat of a self-fulfilling filling policy. Because if everyone starts to become concerned about this low yield environment, um, indicating then of a potential economic slowdown, well then if companies start to withhold their capital investments, you know, this can then start that domino effect and lo and behold the economy will start to slow down significantly. On the back of this, I did see a research note out of Morgan Stanley They've turned bearish on global stocks as challenges grow. The interesting thing here is that earnings season— there's a couple of earnings reports actually coming out this week. The only one that's really, I guess, from a broader indice point of view that might be interesting is PepsiCo. PepsiCo are roughly about number 28 in terms of indexed capitalization or index percentage weighting in the S&P 500, so they're nowhere near the top of the pile, but one of the bigger companies reporting. Earnings season doesn't really kick off a bit more until the next week or two, but earnings season is coming up and you're seeing probably a couple of these banks just realigning their expectations a little bit because, as they're suggesting, elevated valuations and profit headwinds are amongst the biggest concerns. Because just like we were just talking about with fears over, you know, deploying capital investment or borrowing under conditions of becoming more pessimistic about future global growth, while corporate profitability expectations got to be realigned and come back somewhat. And so MS kind of getting ahead of the curve and just downgrading their allocation to equities to the lowest in, in 5 years. And I think that really is a bit of a sign of the times, because I think if you look at equity prices year to date, S&P, I think what we're up in double-digit percentage gains north of what, 15% And so up at record high territory, I think it's appropriate probably to think of this idea that, well, you know, taking a little off the table in equity exposure is probably, um, from a medium-longer term point of view, likely to be appropriate. Other headlines: Libya fighting has erupted again. Here's the oil impact is an article we shared via Twitter on the Amplify account. Not that there's any new news, this is kind of an ongoing situation. Of course, this is to do with ever since the, the death of Gaddafi in 2011, there's been this kind of, um, this jostling for power, if you like, power struggle. And what is, as far as reserves are concerned, Libya is one of the most kind of healthy oil-producing nations in that sense. It's just the fact that they have such you know, political difficulties, such civil situation at the moment where there's, there's Haftar, who's the kind of self-imposed kind of political structure taking control of the army and much of the oil infrastructure in that country, is causing friction as he's kind of pushing on the capital city, which is then backed by the UN and obviously more aligned Western forces. So this So, definitely something to just keep an eye on. As I said, there's nothing really too new. It's just kind of a similar situation with Iran. Iran's oil minister saying over the weekend that they'll continue to pump and export as much oil as physically possible. This, of course, meaning that their uranium enrichment levels have gone over and above that of what was agreed in the original 2015 agreement with the Obama administration. Situation. So tensions in the Middle East, I think, although a lower-ranking topic on that structure of hierarchy of, of macro themes, you know, as per usual with these commodity markets, it only takes one supply shock for the whole thing to become an elevated issue again. So definitely would keep an eye on it in that respect. Other things to be aware of: Brexit. Um, we remain in that the usual spot for the moment where I think the process of where we're at with the Tory leadership now is that the 160,000 kind of grassroots Conservative members start putting in their postal ballots as of today. That is a process that will go on for the next, I think, 2 weeks or so. It's not until the week of the 22nd of this month do we start then looking ahead towards the results and who will win that. But again, it remains odds-on that Boris Johnson will win this. With that being said then, with Boris Johnson taking this very much more of a hard Brexit stance of a credible threat of a no deal, and this idea of potentially kind of closing parliamentary sessions through this course of, I can't remember what they call it now, pro— prologging, I think it's called. It's one of these antiquated kind of UK legislative laws that is used to basically mean that basically Parliament then would not have an ability to disrupt or block through amendment bills, which is what this article is suggesting by the likes of Dominic Grieve, who's a staunch kind of a believer of eliminating the risk of a no deal. There's some suggestion that Boris Johnson could look to, to stop that from happening. And so this week the talking point is whether or not Dominic Grieve can get enough support, cross-party membership within Parliament, to change legislation in such a way that Boris cannot then kind of close this session's Parliament to remove then this threat of a no deal. So that's something to just look out for. I do still think that the risk of a no deal at the end of October is incredibly small, and my baseline is still that at this point we're going to roll over that until, until March of next year. Yeah, Mike's just put a link into the chat, so here it is if you want to have a look. Prorogation is what it's called. I won't go into all the details, but I'll pop the link into the, um, the chat room. This is on the parliamentary website. It basically marks the end of a parliamentary session. And so once prorogation has started, it means that then no business can be dealt with or voted upon, meaning that effectively then Parliament couldn't block this threat of Boris's of then executing a no deal. So this is the kind of new buzzword that you're likely to hear surrounding, surrounding Brexit. The other things to be aware of then is, um, as a headline point, who's going to take over the job at the IMF? Remember, Christine Lagarde is going to be— I think it still needs to be ratified, but more likely or not will be the ECB president. So who's going to replace her as managing director of the IMF? And latest reports would suggest that Mark Carney, the Bank of England governor, of course, is now the front runner to be considering the top job at the IMF. Again, similar, you know, whatever your feelings are about Mark Carney, he is incredibly well qualified to take over that job. You know, here's a guy who, you know, academically graduated from Harvard, master's and PhD from Oxford University, worked for Goldman Sachs for 13 years, all in global different roles and locations, then worked as the deputy first, but then the governor of the Bank of Canada, and now the Bank of England for the last several years. So, you know, you'd be hard pushed to find someone more qualified or more capable than Mark Carney to take that position, which I think probably at this point, maybe a bit early to say, but I reckon if he's up for it, it's an absolute shoo-in. And I would say, well, What does that mean for market prices? Well, really nothing. What does it mean though? I think importantly, from a top level, if we are going to go through this late phase cycle in the business kind of long-term economic cycle, then we're probably going to go through some quite challenging periods for monetary policy and fiscal policy if the economy is heading for this almost inevitable downturn. And I think it's very important for the the management of the global economy by all the major institutions. So not just, not just commercial and banking, but by central banks and also other third parties like the IMF, that you have really capable people running the show. And I think Mark Carney would be very important to, you know, a piece to that puzzle given the economic difficulties I think that are on the horizon over the next kind of 18-24 months. All right, that is it from me. Um, like I said, didn't really look at the charts because Sam's going to do that job, so I'll hand you over to him. I'll see you in the chat room. I wish you a good week ahead. Thanks very much.

Thanks, and hope everyone has, uh, has had a, a good weekend. Let's have a quick look over the DAX here, which is just pushing higher. As, as Anthony mentioned, that pivot providing some key resistance so far. That gap fill didn't take too long, uh, post-8 o'clock. But worth keeping an eye on that, just above the pivot, the sort of the highest price was before the close that we had on Friday. And in turn, obviously keeping a close eye on how that's going to affect, uh, US equities as well, which had a, an interesting close to Friday, we obviously had the, the jobs numbers, which led to a push down to what was a really key point from, uh, earlier in the week, the low of the 3rd, but the, the previous high of the 2nd, uh, that offered a good level of support after a brief sort of false, brief false break on that. Um, but certainly today around the pivot, you can see we had some decent price action there earlier So a bit of a line in the sand perhaps could well be that area above there. We could be looking at price looking to reverse a touch, and obviously the 3,000 which offered good support initially on Friday morning, and before that 29,98, or just below that where we had resistance back on the, the Friday evening. Those would be obviously areas to have marked up and potentially any trend lines from those all-time highs, uh, or near enough the all-time highs to that area. And that looks like it come in around some previous resistance that we may have had. To the downside, the S1, that Friday low, the key level 2973, uh, on the futures, that would be an obvious point to, to have marked up as well. Just having a look price. If it was to get down there, you could argue the lows of the day, this potential trend line and support that we had back on Friday afternoon as well, around 29.77 and a half, could also be of interest. Uh, just having a look over, uh, the currencies, we had a decent push lower on, on Friday. In my opinion, was a bit of a, an overreaction. So I would be not necessarily looking to to go too aggressively short, but, or long in that respect, but also just waiting to see what the market tells me what's going to go on. And what better place than looking at what was the previous low on Friday of the jobs number before that breakdown. That's acted as resistance today. So 112.96, pretty nice level as a gauge where if we go above that, then yeah, sure, we can look to get towards the pivot. If holds, we might start trending down again. And just dropping this, this a bit lower here, you can see relatively choppy price action so far. However, one opportunity was on the break earlier on, so be interesting to keep a close eye on what happens on the retest of this trendline. However, Monday, post-on-farm payrolls, it's never ever really that exciting exciting to get involved and trade too much. Um, so, you know, be careful with those entries. Wait for the levels to get tested rather than being more aggressive, uh, would be any advice I, I would say. So even around this area, you could argue, well, we've just come back down to, to test this trend line as well. So not a bad point. You don't need a massive stop on it if, if you were to, to take something like that on today. Uh, to the upside, with the euro and any of the dollar pairs, just keeping an eye on those breakdown levels before, uh, the, the release did come out. Of course, you can see we had that initial push through 130. We did snap back but then continued to go. So 113.18, around 113.20 area on the euro dollar. And also what was a nice level of support, uh, in the morning of Friday and Thursday as well, 113 36. It is similar for the other dollar pairs. You can see the pound, which obviously just keep pushing lower at the moment, but any retest of these previous support levels will be key, uh, to, to guide whether we can continue to go down or not. One market that has had a go at reversing more than others that is dollar related is gold. However, not far away from that really key point, 1411 $1.2 I've got marked up, or $1.3 to be specific, on that pre-low before Non-Farm. Uh, about $3 away from that, so definitely worth having that marked up on the chart. How we react around there is obviously key. And then if we do push on, any of these trend lines that might well come into play as well for, for gold. Aussie dollar, quite an interesting one that I was looking at more longer term. You can see, I'll just remove the pivots and stuff, just from the highs that we've had in previous times. Well, more so, I mean, obviously we had that low that came in, but also the, let me just see if I can get that on, there we go, from this high here. I was wondering where it's gone. Up from the high of January 2018, it marks up with the April 19 high, and Friday's high was exactly on that third test of that level. So we now have a trendline in play there on the Aussie. So if you do feel that the opportunity to get long Aussie dollar is, is one that interests you, above that trendline would be a decent, decent trade. Just consider considering we now have this in play, we have this trend line that's been clearly looked at. So any more tests and breaks and closes above there, we could see a bit of a rally higher. But that's just one to, to keep an eye on, maybe for the remainder of the week or, or days and, and so on to come. But worth keeping that marked up on the chart as well. Quick look over at oil just to wrap things up. You can see that breakdown that we had the second, we are starting to drift back up towards some of those levels which could offer as some resistance. We already had the test of the, the low of the 28th, but if we can get back above there, around the R1, around the low that we had back on Monday as well, 58.35, that would be somewhere I would have marked up as well. We're just looking to break out this mini, mini sort of 2-day and then this morning's range as well. So quite a key point, that 57.78, failing to, to close above on Friday and again this morning, just struggling a touch. Of course, that being the low of 2 Fridays ago on the 28th as well. So a bit of, a bit of clearing perhaps to go if we can get back above there and it can spread its legs. Whether it would do that today or not, I'm not too sure, just given the, uh, the, the Monday after non-farm payrolls. Likelihood is it's going to be a slow day as people also coming back from their longer weekends for Independence Day in the States. It will be quite interesting to see what happens though around 2:30 and then, you know, when the Americans come into the market as well and start populating things just to see what they do think in regards to the jobs numbers, which obviously beat expectations but we had to miss elsewhere on unemployment and wage numbers as well. So that'd be quite interesting to see whether we can get that reversal, uh, or not, which I might be favored— well, which I am favored to see, but only trading that should it come into play. As usual, any questions, please, uh, do let us know. We'll get the strategy report out before midday as well. But, uh, yeah, any questions, please I did. Let us know, and hope you have a good day and a great trading week.