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

OK, so very good morning. Monday the 8th of April. Hope everyone had a fantastic weekend. Just going into the usual routine for a Monday, going to talk about the calendar. As you can see to my side of me here, some of the main risk events that we're looking for for the week ahead. I'm gonna leave Brexit for a second because we'll talk about that exclusively in its own kind of separate section. But we'll run through each day by day. We'll try to incorporate a couple of longer-term charts and talk about some of the risk events going ahead. But yeah, a few things here to kick things off. And first off, let's just have a review of the, the charts. There's Relatively flat open. There's obviously some, some things we're looking out for of magnitude: Brexit, the FOMC minutes, we've got the ECB interest rate decision. So relatively calm. The one thing that probably has seen some movement this morning has been oil prices. We're already trading up at 32-cent gain, $63.40 here to kick things off. If I start looking on a longer-term daily continuation chart, you can see here we've come up to— I mean, this was a chart that literally has remained unaltered over the course of the last several weeks, not, not even last week. This has been probably about the last 6 weeks. It just seems that there's so many potential supply-side shocks given this ongoing narrative of a positive developing trade conversation between the US and China. The Fed's kind of dovish turn, the stimulus factors that are being thrown at the market by the Chinese authorities, whether that being the central bank or the government. And so we've remained pretty bullish throughout with this, and we've hit, I guess, the nearest upside obstacle. So potentially some profit taking at this level. It would make sense if you're in that long-term, long position. And we've just continued to punch higher. You can see here how the market on each one of these kind of fib levels has used that as a, as a decent target. 55 handle, uh, you can see at 38.2% fib initially hit, pull back, and then consolidated just above it to act as support. Same again, the figure and the fib at 50% and $60, again hit that. These is all just looking at these longer-term targets of that bigger sell-off that we had in Q4. Then you bring in the 200 DMA, it broke through that quite aggressively back on the 2nd of April, came back and has found some support from there. And then here we are now, 6359, the futures, that is that next fib level. It also brings in some of the low from the support point of the summer of 2018 and to where we are here at the moment. So yeah, interested to see how it responds. But I mean, looking on a shorter time frame, you can see here really since the electronic trade has got underway, we have continued to move to the upside. So let's just kick things off with oil. Why have we been moving higher? What are we looking out for this week? So if I jump to this graphic here, this is one of the things that a few people are looking at. This of course is a map of, uh, Libya, or part of Libya I should say. And this is because fighting in Libya is encroaching on the capital Elevating risk of a new oil supply outage from Libya, the OPEC member. To give you a brief summary of what's going on, being titled by Bloomberg, warlord Khalifa Haftar is moving his self-styled Libyan National Army west to Tripoli, the base of rival UN-backed and internationally recognized government. So kind of another civil uprising. This has been something which has dogged Libya through recent years, and hence the reason why people like Libya and Nigeria remain exempt from ongoing OPEC+ supply production cut deals. Because of these exact reasons, tends to lead to large fluctuations in the production of the country's level of crude. Now, this map is, is quite telling, and it certainly is something I guess you should be aware of, uh, major oil fields and export terminals, uh, are far from clashes. But history has shown that any civil unrest in this country does tend to see the country's production fluctuate quite wildly. Now let me flick over to this to, to make that statement a little bit more true. So the bottom axis brings into line, uh, the last 10 years basically, and this is looking at the production of Libya So if you actually look at maximum capacity, the country can actually pump north of 1.5 million barrels per day. The problem is, is that it very rarely does it get to that point because of this political infighting that tends to happen. And of course, this leads to disruption then to pipeline infrastructure, the export transportation hubs, and so on. And so here you can see a dramatic fall on the back of of 2010. I guess if I remember correctly, that 2011 radical recovery, that would have been when Gaddafi was killed, if you remember that, back in, uh, I guess it was Q3 2011. So you can see the effect that he was having at the time and the unrest that that caused. But his death saw an immediate kind of stabilization almost, and a recovery. And we've gone through this relative ebb and flow, and we've kind of sat at a million But one of the key areas here is if we go back to this graphic, you can see on the left-hand side, so you've got the capital city, but here any disruption at the Zawiyah port, the main export terminal for Sharara, which is down here, El Sharara, in the, this bottom left-hand corner of the, the graphic. That's one of the major oil fields. The Elephant El Fil is also a major oil field for Libya. Now, to give you an idea, any access issues on Zawiyah has massive ramifications then for the transportation of crude through pipelines. You can see here from the southern region, that could impact about 300,000 barrels per day. And again, we're talking about a country that produces just around a million, so that's, you know, significant 30% on hit just on that alone. Just so you know the lay of the land for Libya in future, obviously probably Benghazi you've heard of before just through general geopolitical news on the BBC and many years gone by, but the main oil infrastructure, a lot of it is actually based around this area Es Saida and Ras Lanuf, for ones, these are all key export hubs. And you can see here, this is pulling oil out of these various different, um, areas in the Sirte Basin. Waha is probably the most infamous and I think the largest one. So you can see here, if there is any damage to the pipeline infrastructures here, so if you were being super prudent as an oil trader, I'd probably have something like this printed out or at least a list of the major names of the key ports. So here, these ones here, and then also the pipeline infrastructure and the oil fields structure. Therefore, if there is a piece of breaking news that comes out and you hear a disruption, you know immediately if it is important or not and if it's going to have a meaningful impact on the price of oil or not. So yeah, this was a slightly longer-term chart. Hopefully— I know it's a bit squeezed. If you did want to see these, I did email these out to all of the Amplify Internal guys yesterday. Basically what this is, is a slightly longer-term picture of crude set up with a couple of technical indicators. So you can see this brings in that fib, but you've also got that trend line that's been in play pretty much since the beginning of the year and has held so far. Interestingly, from an oil perspective, market still remains of a bullish appetite. Hedge funds continue to add to their long positioning, and shorts were cut something like 10%, I think, last week. Other key risk factors, I'd say, directionally for crude: any update on the China-US situation. OPEC's monthly report is coming out, I think that's on Wednesday if I'm not mistaken. Then you've got the weekly inventories, Tuesday, Wednesday, usual routine. Major US data, of course, any influence on the dollar that could have, could be influential. That's coming out, factory orders on Monday, US CPI on Wednesday. And then as I said, we're at a period of, of significant technical resistance, so I'd be interested to see a break of that given its significance. Could well just extend to the upside, and it wouldn't take a lot from a fundamental catalyst, just another new development I guess on supply shock could lead us up there. Anything on Iran, Saudi, that type of thing. But otherwise, I'm not sure that in the wake of that whether or not we might just see some consolidation here at these levels. Uh, back to the, the overall week though. Uh, again, X-ing out, um, Brexit for the moment. A couple of other key things to look out for Tuesday. You can see I've bold and underlined the main events throughout the week, but on Tuesday you've got EU-China summit. You've also got EU-Canada summit happening on Thursday as well. So not only is this a big week for Brexit, quite an important week as well for the eurozone, because obviously relationships with China pivotal for the long-term trade agreements. Same case really with Canada. It's probably to a a lesser extent to some degree. But this is kind of ongoing alongside this risk, of course, that still the departure date for us from the EU is still set for Friday at the moment. And we'll discuss what we're looking out for from that in a moment. Otherwise, moving on to Wednesday, a few other things here that you should be aware of. We've got the ECB interest rate decision. Always obviously an interesting event. I would say though, last month we had such a dovish overdelivery surprise for Mario Draghi. I guess what we're looking out for here is a little bit more just staying the course. And is there any more details that get unveiled around this long-term or the refinancing operations? These TLTROs is probably the main thing the market will look at. The other thing, of course, is we have a Q&A with Mario Draghi. Probably the most pressing thing that markets want to know is, um, has the action he's already announced in the previous meeting been, uh, need any type of update at all given how weak some of the economic data has been, particularly in countries like Germany where the economic data generally has surprised to the downside? So yeah, what's his kind of, uh, optimism, or I should say how pessimistic has he become, would be quite key, I'd say, from the Q&A side of things. And also you can see here, yeah, it's kind of a central bank day. You get the FOMC meeting minutes on Wednesday night, so 7 PM, and this again will be very interesting because if you remember, this was also when the Fed over-delivered. They announced the kind of ending of their quantitative tightening over the coming months but they also surprised the market with a slightly more shallow trajectory for interest rates, particularly for 2019. We're expecting interest rate hike expectations to go from 2 to 1, but they went from 2 to 0. Now, at the time, a lot of people were questioning, wow, what do the Fed know that we don't to take such aggressive action? So maybe the minutes might underline some some of those discussions give us a bit more insight as to what made them take that extra step on the dovish side of things. With that being said though, you know, talking of a dovish Fed, there is of course one market which has benefited from this situation, and that has been— if I just flip over to here— it's been the S&P 500. So You know, it's probably about 2 weeks ago now since we had the Fed, or maybe 2 and a half, slightly longer. And as you can see, the S&P 500 capped its second consecutive weekly gain. So again, solidifying just the, the grave importance that central bank decision has on underlying market prices. This, of course, coupled with the other big macro single theme, which is that of, although not a done deal, intonation is, is that in the coming weeks something will be signed by the heads of state between the US and China, and that also being a positive— or I should say an elimination of one of the biggest risks to the beginning of this year. Now, from an S&P point of view, we, we've been rising. That dovish Fed gave us the catapult we needed to really get above quite a key area of technical resistance in the futures up at around 2865. Uh, they were the highs you can see here, but also these rectangles in the previous all-time high that we had back at the beginning of February. Um, so now we've come to an interesting point, and on the charts you can see in what would be overnight Asia-Pacific trade, we've basically traded a 2900 handle. So that is obviously a psychological barrier to the upside, but that is all it is, to be, to be honest. And I know Sam has had a, had a tweet pinned to his Twitter account for the best part of about 3 months when the market was way down here, talking about all the the kind of mechanisms are in play now from a certainly a central bank point of view that we were going to go back to all-time highs. Well, this week could be that week. We are not that far off. We've got probably 29— well, the all-time high basically is 2944.75. So if we get through that 2900, that's kind of the— you can see how the market has responded to that in the shorter dated futures at the moment. So, you know, this is the high we've printed at the recommencing of trade overnight, and we've taken some profit on the back of that. But that's going to be the big target for the week, I think, the 2900. And if we break, will it do the same again like we've seen before? Once broken, add then a kind of layer of support as a platform then for the next push that as we grind up to the all-time highs once again. There's obviously one man who's going to be very happy about that, and that's going to be this guy, the main man, Donald Trump. He is pushing for those all-time highs, of course, and by that I mean Trump has been saying he wants the Fed to cut interest rates. Basically, Trump was commenting last week, he was commenting on Sunday He's been criticizing the Fed again. We obviously know that he's been appointing some nominees for the vacant Fed positions. In one of those, I think his name was Stephen Moore, wants a 50 basis point rate cut, which is unprecedented. There's no way he would ever get anywhere near the kind of support to get that over the line at this point, but definitely a yes as far as what Donald Trump would want. And what Trump has been saying is that basically inflation is not doing what you base your decision-making predominantly on as the Fed, and so therefore you need to start cutting rates. Now if you scroll down, this is what Trump's referring to, and this is, as you all know, the Fed have a 2% inflation goal and inflation has been moving ever away from 2% 2% over the course of the last couple of months. The problem is, is that the— from the Fed's point of view, classic economic theory, otherwise known as the Phillips curve, would, um, predicate that if you had, uh, continued tightness in the labor force, then in time that should create then higher wages and in turn demand should rise and consequently future inflation emerge in time. The only problem is, is that that is becoming questioned given the fact that unemployment has been near record low levels in the US for some time and inflation still hasn't really committed and took off, at least consistently. So yeah, unemployment rate still still in a 5-decade low is what Federal Reserve officials still seem to be basing a lot of their decision-making on. So yeah, you can expect more of this from Trump. Of course, we've got the 2020 campaigning will start heating up in due course. For me, I actually think again it's a good strategy from Trump. He talks up that the Fed should be doing more. The Fed's either listen or don't. If they don't, well, he can criticize the Fed and blame them. If they do, well, that's a win for him. And if inflation doesn't emerge, the Fed have to do what he says anyway. So for me, this is a win-win strategy for Donald Trump. By criticizing the Fed and calling for rate cuts, he kind of can come out on top either way. So yeah, another well-managed situation in my opinion from president. Going back to, uh, the calendar, um, final things then for me to talk about, of course, need to come about Brexit. So let's jump to the latest. Here it is. Um, much more to come. This actually quite a defining week for Brexit. Um, UK Prime Minister is hoping to restart stalled Brexit negotiations with their chief political rival, of course, Jeremy Corbyn, which commenced last week when she said she would try to find a way forward to get a deal over the line. And the issue here about how closely Britain will be tied in customs union. Now, over the weekend, May defended her position, but the talks appear to be stuck at the moment, with no further meetings planned today, according to two people familiar with the matter who were speaking to Bloomberg and have been quoted. The choice that lies ahead of us is either leaving the European Union with a deal or not leaving at all. That's what Theresa May said on Sunday. Now this, we still go back to the same kind of political leverage that May's been trying to put on Conservative members for a long time, and I think this is the same ongoing strategy. And again, I think it's probably the only one of which May has to adopt, and that is again, you either take my deal or you risk having no Brexit at all. This has obviously disgruntled a lot of the Eurosceptic MPs. Jacob Rees-Mogg at the weekend saying, "This is a grave mistake in the process by talking to Corbyn. How can you one day criticise him that he's unfit for office and then start discussing the future of our country with him?" So again, it's become very fractured And this does run risks then that we could have some further complications for this process going forward. Now, a few other things I wanted to share with you, and this is the— if you're trading Brexit, or at least trying to navigate the noise, this is basically a crib sheet of what I put together at the weekend. What we're looking at here is line by line, day by day, what it is that you guys need to look out for So today we are expecting, although this is not a set scheduled event, a statement from Prime Minister Theresa May updating on what she wants to do about this idea of an extension. The second part of what we're looking out for is UK Lords vote on the Cooper Bill. This is the one that wanted to eliminate no deal that flew through the House of Commons, the lower house, last Wednesday. It was supposed to go to the Lords on Thursday, but they basically delayed that and it's today we're going to be discussing that. And from what I've been reading, that might not happen until much later on today. There's nothing actually penciled in for Tuesday, but then Wednesday there's Northern Irish questions in Commons for half an hour before the regular PMQs happen on a Wednesday midday. However, Theresa May will not be attending Prime Prime Minister's Questions. Why? Because she's going to be at that last-ditch European Council meeting happening in Brussels, um, and so she's going to be in the thick of it over there trying to negotiate last deals here with her European partners. Thursday then, she's expected to come back and update Parliament on what the outcome was of those discussions in Brussels. Also then, as a net consequence, there could be potential announcements on urgent Brexit business. That's going to be probably quite key. And as I've been saying for many weeks, I think this week will be absolutely no different. And that is that this is going to go all the way down to Thursday, because if nothing happens, if we remain as we are today, i.e., the Lords don't back that Cooper Bill, we do crash out of Europe and have the worst economic consequence scenario on Friday. The difference is, I can tell you now, that's not going to happen because politicians literally are just doing what politicians do, and on Thursday there will be some wiggle room given or concession on either side, and whatever the outcome, I still think the risk of a no-deal Brexit on Friday is minimal. If that were to occur, well, I did mark up a chart for you guys to give you a bit of an idea. I know again this is a little bit small, but you can see here we're trading in cable this morning, a 131 handle in the future. So this is where we are at the moment. Marked up here, we've got a bit of a trend line forming from the price activity from the end of last year. Which was really kind of late November, retested in Feb, and also retested just last week on 3 touches. If we had that no-deal scenario, just given the fact that it is a low probability, you're going to get a large reaction if that did materialize. And so I'll be looking for down at the 125 handle. So I'd be looking for a severe repricing to the downside And if that broken, which I think would be a strong case in a no deal, I'd be eyeing down at the 1.20. So I'd be looking for the best part of an 11-point move if we crash out of Europe, uh, by Friday. And remember, the way that this is going to head, and the reason why I think that could be, uh, quite a big move, is because the market's going to be on tenterhooks waiting for and expecting this last-minute deal. If that doesn't emerge it's going to be a violent sell-off and a big move at the end of the week. That's not the base case scenario. The base case is that we do agree to some kind of extension, which is, again, I think is going to be May's deal with a slight tweak around this customs union in order to get some of the Labour side on board to counteract then the Eurosceptics who would largely not support this. The DUP obviously, uh, carry a lot of the power here with their 10 seats because they have been pretty resolute. They won't back the deal just yet, just yet. But given the market's been holding up relatively well, then a relief rally, if you like, on the deal getting done— my target here would be up at the 133.50 type of area. Any push beyond that, be looking further up, just scaling to these levels. So I've got two kind of rectangle targets there, uh, 133.50, which is basically the tops from September last year and the price action year-to-date high that's really acted as resistance. Then you've got the 135 handle further up would be appropriate targets. Clear to see though here that a successful transition into a long, longer extension, a softer Brexit you're going to get a softer, more mild relief rally than you would in the, the more shocking and surprising no deal, which would be to me about a 3-to-1 move larger than a successful deal going through. I'm not going to talk through this graphic a great deal. What I'll do instead is I'll put it in the chat room to show you, but here's basically you know, the decision tree of what we've got. So the talks that are happening at the moment, the EU summit's gonna happen here, and then you've got basically do EU agree to what we're asking. But before that happens, obviously we need to have a constructed deal that's going to make Labour and Conservatives happy to bring forward then, so that you know what they are extending this deal for in that regard. All right, that is it from me. I've spoken enough, so I'm going to switch over. I'm going to let Sam come on, talk about some of the more short-term charts in a bit more detail. So with that, I wish you a great week ahead. Thanks very much, guys.

Thanks, Ant. Hope everyone Had a good weekend, enjoyed the national Tiger Roll. First time in their 40-odd years, back-to-back winners since Red Rum, as Charlie rightly said. Let's have a quick look to start the week off here with the S&P. It's found support on the previous high that we had on the year back on the 3rd, and the way this market is going, it wouldn't surprise you too much if that was the low of the week that we've just seen there. But Above 2900 bullish, and I think really you've got to see a decent move back below 2873 area on the futures before you can half get excited about any significant move lower. However, we have come down a touch today from where we opened, and as Anthony was talking about, not too far off the all-time highs, and whether much can stop that going into the next couple couple of weeks. I'd be surprised if it did. One point to make a note of, and even though you can see the, the euro has just pushed higher, or did push higher this morning, it's, it's been very choppy last hour or so. And, and that's the case usually, uh, the, the couple of days after non-farm payrolls, uh, the market is, is pretty flat. And yes, there's some half-decent data points coming up throughout the weekends and some days where it looks really good. But just as a word of warning, the Monday morning after non-farm, is there really going to be too much happening? Uh, the little range that we are in, in the euro, uh, if we can get a push above that high, you've still got quite a bit of noise from the sort of the aftermath, if you like, of the, the non-farm. Uh, 113, just above that as well. So even looking to get too aggressive anywhere above the pivot, I'd almost advise against that unless there was, you know, some sort of breaking headline out. Uh, the, the bottom part of that range, you can see from the, the morning high or the Asian session high before we did break through that in the early hours on the futures, comes in around 1.1288, almost a bit of a mini range. And, and unless we were to see some significant, uh, move either way, I wouldn't be too interested in in getting involved in that. Uh, it might be worth— I know we, we sort of broke out of this, uh, this range, this, this sort of channel from the, the top to bottom on the, on the numbers. It might be worth just having the trend line on from the low that we had back on the 2nd of April a few days ago to Friday's lows as well. This might be something later on in the week that I'd be focusing on, or even today maybe, if that was to break, to then get in and, and then see a further push lower. The pound is what it is, isn't it? Good level of support has come in from Friday, back into Friday, into, into sort of the, the close of the, the futures trade, and it held well. Decent push higher, so the technicals still are half working. But as we know, this market of the fundamentals is really what's going to drive it But the significance of that level, you can see going back here, I'll just move the camera out the way, the 11th, the 29th, and obviously the 5th as well, all held a strong level of support. Those highs are significantly getting lower, uh, so, you know, this may be short-term sentiment. It seems is to the downside, but one good comment and we're, we're back higher, of course. Having a quick look over at oil, and I haven't talked about it, uh, earlier as well, and like the S&P just coming off a tiny bit from those highs. But what's standing in the way of this at the moment from a sort of technical point of view to the upside— if I just clear off the pivots to, to make it a bit easier to see— just above where we're trading, I'd say the next key market-related area is going to be between 6420s, which we're not really too far away from. And of course, 65 is sort of a round number. Reasons being the, the key sort of high that we had back in November, but also really good price action going back to— what month's this here— August, May, and June last year as a strong level where people might just be looking for this market to drift a bit lower. I'd say also another key one, $65.71. So as a zone, a big sort of dollar and a half. And if we were to get to those levels at that point, you'd imagine the S&P would also be near its all-time high, which again would, would signal a bit of profit taking. So potential for a sort of a short-term top around that, I think people would be looking at. Uh, having a look elsewhere, the DAX has just obviously jumped to life over the last 13 minutes or so. Once 8 o'clock hits, you can see the, just the price action to the upside, to the downside, and I think that could be the story of what is to come Monday after non-farm payrolls. Wouldn't really be looking to get in too heavy in this market and almost waiting for better opportunities later in the week. Stocks is coming off a tiny bit still, as is oil, but nothing too, too crazy for now. Any questions, as usual, please do let me know. We'll get the strategy report out later today. I think it's gonna be just after midday, so keep an eye out for that. But if I don't speak to you, have a good day and good luck with the, the rest of the trading week.