The Trading Week Ahead: 9th - 15th December 2019

Okay, very good morning. Monday, 9th of December. Hope everyone had a great weekend. And I would say, without adding too much drama, this is going to be the big final push then into year-end. This week definitely is, uh, an important week for many different reasons. Probably from a top-level macro perspective, you know, forget the UK election, I'd actually say the deadline looming this Sunday for the next round of tariffs, the US on Chinese goods for $156 billion, that arguably is the biggest story in town for the global market. But however, short-term, at least in the domestic space, space. We're going to be focused on the UK general election. We've already had a little bit of movement in the British pound this morning after a lot of the polls, which we'll look at in greater detail in a moment, uh, have been indicative of a Tory majority still. And just as a reminder, if you don't already do so, remember to subscribe to the channel, hit the bell icon to turn on notifications, because I will be covering the full night of the UK general election live So we'll kick off at around 9:30 PM London time, and then I'll stay for as long as it takes. Um, so at the time we've got a good half an hour running on that session. I'll give you a full preview, how to interpret the news, what are the timings, what are the key, uh, battleground areas to keep an eye on. Uh, and then I'll be there to hopefully, uh, guide you through all of the information as it comes out on that night. But before we get going, um, just want to have a quick look across the charts this morning. And equity index futures, a relatively flat slight downturn here as I'm— as I start the briefing in the European index futures, but nothing too substantial. As you can see in the US, we're kind of sitting in the S&P here above the pivot, likewise in the NASDAQ and the Dow. In the FX markets, tiny bit of sterling outperformance. It's just just backed off a little bit here, more recent trade. But as I said, a couple of more favorable polls that would be reflective of the fact that Conservatives at this point are still expected to secure a majority. To what size is yet to be determined. Elsewhere, gold, not too much change, up slightly, about $2, trading at $1,467. T-notes up about 4, sitting at the pivot at the moment. And then oil, of course, after we had the confirmation of the cut that came by way of OPEC+ and also some of the comments over the weekend about Saudi willing to do more than what they necessarily have to do as part of the quota. Oil prices down about $0.30 this morning, but still elevated in terms of holding on to the gains that were seen at the back end of last week. And we trade around a $59 handle at the moment. Okay, so I'm not going to focus too much on the charts because there's plenty of news for me to get you up to speed on and thoughts on what I think about the week ahead. So I'm just going to stick exclusively to the fundamentals for this rundown. I will issue though the weekly strategy report a bit later on this morning, and I'll include technical charts and setups as well. But first things first, I did mention that, you know, despite Obviously a lot of the UK press, if you are based in, in Britain, is focused on the election. Don't forget there is the next deadline of tariffs due this Sunday. And what I wanted to do is show you this chart which looks at basically the last couple of weeks of price activity in the S&P 500, the Dow, and the NASDAQ. And what we're looking at here is this green box on the right-hand side. This is last week's price action, and as you can see, we had such a roller coaster week. You remember, we started and we had two very big sizable down days. I think cumulatively, uh, last Monday, Tuesday, we were down in excess of 650 points if you were looking at the Dow, for example. Now, a lot of this came because of the renewed tensions between the US and China. However, then we started to get some decent US economic data come out, and that very much was solidified by US non-farm payrolls on Friday. Now, you remember payrolls, this is what it looks like. The print that we had at 266,000 was a surprise. You remember ADP came in, what, in the 60s, way below market expectations. So people perhaps were a little bit downbeat going into that labor report, but it absolutely smashed it above the top end of the analyst's most optimistic range. 266,000 above expected 180,000. Notable job gains in healthcare, in professional and technical services. Employment also increased in manufacturing as well, predominantly due to the fact that General Motors strike, those workers returning to the workforce. So 266 was the second best reading, in fact, that we've had in the entire year of 2019. Now, one thing that I had been talking about, and so to conclude the kind of matter, is what does this mean then for growth in the United States as we go into the beginning of next year when we'll get the Q4 advance GDP readings for US growth? And remember, it was at 1.5% at the end of last week pre-payrolls. Well, that GDPNow model, which I referenced a couple of times, has now been recalculated up from 1.5% to 2%. And 2%, of course, would keep, keep us pretty much stable from the type of growth that we've seen in Q2 and Q3 of this year. So despite a lot of people thinking that the US economy was consistently showing signs of recent weakness and growth was starting to fade. Actually, that's, that hasn't been the case as far as now the, the latest model predictions would suggest. So you can see here, this last little uptick that we've had just going into last week puts us the highest that we've been since the last 2 months for sure on these readings. Now, if China-US is important, what's the current status on that matter? Well, China did speak overnight. They said that they hope to make a trade deal with the US as soon as possible amid intense discussions before those tariffs are due to kick in at the end of the week. So with this being said and, and knowing ahead of time that deadline and the sensitivity in global markets cross-asset to this type of news, I would say as per the normal state of negotiations Typically then, I would imagine the political pressure will remain quite tense all the way up until we get to really the end of the week. So certainly Friday could be quite interesting if there's been no headway up until that point. Before then, do we get the inevitable delaying of the tariffs? They kick the can down the road kind of situation, and then they re— revisit this in the beginning of next year. I mean, that would be I would say the most net positive for market sentiment if that were to be the case, or if we get any hints towards that type of action. However, the one caveat would be, remember, the US economy as I've just described it is now kind of flips into a bit more of a bullish short-term state as far as how markets are perceiving future growth in Q4 in the US, particularly after non-farm. And so although I'm not obviously looking at just one data point in isolation, 2% growth in Q4 is still pretty decent, all things considered, that with US equities up at all-time record highs, you know, does— has Trump allowed himself some room to deliver on his hawkish rhetoric? And so therefore, does he just push the button and say, we're doing it, tariffs are going in? And if that is the case, then obviously, given, as I said, where equities are positioned in particular, you would think that we've got to see a little bit of a pullback from those those types of elevated levels. So a little bit of a trade-off here. I'm a little bit indecisive myself about where I sit in between that of a delay and a can-kicking-down-the-road exercise, or Trump has the luxury now of a little bit of freedom allowed by the strength of the stock market in terms of where it's at, and also the underlying economy having performed okay recently. Does that give him the confidence to kind of follow through? So Yeah, it's gonna be interesting. You're gonna have to be vigilant throughout the entire week because obviously there's not really a set schedule for this type of thing. So obviously I'll continue to share all of Trump's calendars and everything as soon as I have them. Meanwhile though, domestically, why is China sounding so kind of upbeat and positive and kind of open to the idea of dialogue? Well, their economy is hurting at the moment, and we've had this over the weekend, the latest Chinese trade data Exports dropped 1.1% in November. Their export data within the trade, within the trade balance report was quite substantially weaker than expected. So yeah, as the headline would suggest, does go some way to show why they want to secure a trade deal. Imports from the US gained for the first time since August of 2018, so they're certainly looking to do as much as they can to get the US on side. In order to avert the deadline on Sunday. Okay, changing direction, let's have a look then at the UK election. I'm going to go through later on in the week, as I said, I'm going to cover the whole event live. So when I do that, before the exit poll comes out, which is absolutely one of the most important moments of the night if you're trading it, that will be at 10 PM. So half an hour before that I will give like a full rundown of the chronological key constituents to watch should we, or should the exit poll be inconclusive. That's the type of situation then when every single release by release is going to be quite critical. From a top-level overview, usually those results start coming in, the first ones, the most early, around midnight, and then from midnight till about 3 AM. By the time you get to 3 AM, you're in usually a pretty good position as to know what the end outcome will be, given historical precedence. So really it's about identifying those key battleground potential swing areas that have been targeted by, say, Conservatives in a Labour traditional stronghold, but of areas of which were heavily voted to leave, for example, would be key ones to monitor. So a couple other things then. Let's have a look at some of the opinion polls because as I said, the pound's been a little bit, a little bit firmer this morning. We've just managed to get above some of the highs that were seen towards the end of last week. And this is it. Johnson has returned to key Brexit message as polls put him ahead. So it has yielded some positives, this whole notion of this election being particularly unusual, polarised of course by the issue of Brexit. You know, you're either leave or remain kind of mentality, and the phrase of "Get Brexit Done" continues, and that will be obviously the message that he will be saying throughout this entire week. Now what we've had here is— this is a look at the average poll of polls, and graphically, I know it's a bit difficult to see, But if you look right to the far right-hand side, you can see the Conservatives have just blipped a little higher and Labour's just dipped ever so slightly. So although from a very far view, let's say, it looks like they're, they're both moving in an exact correlation of same distance, but in essence, if you were to zoom in, actually the Conservatives through what has been a whole selection of polls that have come out over the last couple of days have re-established a fairly decent lead of a low double-digit nature. Some of the biggest ones, the latest Survation poll, the top one here as you can see, puts them back to 14 points. That's 14 points up from last week's 9. And BMG, which was the one that caused a lot of headlines last week because that had Labour narrowing the gap to 6. That's now gone back up to 9, and then all the rest are kind of in between at the moment. YouGov's latest one at 10 points and so on. So with that being said, there is, uh, I'm told, the YouGov's last and latest MRP poll. You remember that was the big one that a lot of people were looking at about 2 weeks ago, which did actually cause a gap in prices because of the the fact that it reflected a conservative majority of about, I think the calculation would have been about 68 seats in parliament. Now, the reason why people look at that, of course, as we know, is the methodology was particularly accurate in correctly forecasting the previous election. But as I understand, there's a secondary and final YouGov MRP poll tomorrow, and that one I think will be quite, quite telling. Fairly definitive because now these politicians really have run out of time. Unless something quite spectacular was to happen or there was some kind of absolute bombshell dropped from an opposition party, let's say, on the likes of Boris Johnson, of which you would have thought they would have shown their hand by now, then all things remaining equal, it looks like the Conservatives will go into this ahead in the polls by around a 10% kind of average. Now, a few other things to be aware of. Where is the Prime Minister today? Well, I think absolutely no surprise, the Prime Minister today is visiting Sunderland in the northeast of England. It's obviously an area that voted to leave in the EU referendum in 2016, and any trader who traded that night will remember Sunderland very clearly. The reason why Sunderland is so key and the reason I guess tactically that Trump— that Boris is there is because Sunderland has a historical precedence that they have this local pride about being one of the first constituents always to get their results out live. And so normally they're one of the most— I mean, in the night of the referendum they're a fairly large populous area comparative to other constituents within that kind of location in Britain. When this time round, obviously it's first past the post, but Sunderland will be— it's kind of like a symbolic area, I guess. And so he's going to be there today banging the drum that we can't allow any more delay and, and so on and so forth to get Brexit done. The other thing as well is, I'm not sure if you caught it, but the head of Ipsos Anthony Cheung, who's one of the main pollsters, was speaking on Bloomberg TV when I came in this morning. And there's a couple of interesting points that I thought he said. And one was that in 2017, you'll remember Theresa May had, when she called the snap election, an overwhelming clear margin in the polls of an average of around 22.5 percentage points. But by the time we actually got round to the day of of voting, that lead had been narrowed, um, kind of spectacularly. A combination really of Conservative complacency, the dementia tax as well, that, that went down very badly. Corbyn did an excellent job at galvanizing the youth vote to really get involved. So a couple of things there though that I think are quite different to what's happened this time. And what that chap was saying was that actually last time Labour made such good headway in that period, but this time that hasn't really happened. Corbyn's favourability as an individual is still deeply negative, but it has improved marginally. But overall, the gap really hasn't changed a great deal in comparison to 2017. One of the biggest things was, as I said, Theresa May's policies, some degree of complacency as well, really hurt her chances. This time I think a lot of people were nervous about Boris Johnson in the build-up to the election, particularly given the format of live televised debates, but even though he's not really smashed those, He also hasn't made any disasters. There's been no real calamities. And so therefore, he's kind of managed to come through it largely unscathed and keeping that one simple message about getting Brexit done. So, you know, if you're looking at the polls, yes, you've got to take them with a bit of a pinch of salt, but they do still show a Tory majority. How big of that majority is unsure. And is there still a case for a hung parliament? Absolutely there is, but the chance of it happening seems fairly remote. Now don't get me wrong, if that were to materialise, well, that's going to be a big move in the markets. You're going to get a big reaction when the exit poll comes out, and then it's going to be, you know, game on for every major constituency that comes out to see whether or not that is ratified. By the end of the night. But I think so far the prospects of, of a repeat of 2017 happening, I must say, I think are a little less than what was the case that time round, just given the evidence of what we've seen so far. I would say is my, my general view. Other things then to talk about away from the election, we do have two major central bank interest rate announcements, both of which come accompanied by their latest, uh, financial economic forecasting. So we get the, the summary of economic projections from the Fed and the Eurosystem staff projections coming out from the ECB. So starting off with the Federal Reserve, or really both for that matter, uh, the Fed have cut interest rates of course 3 times now in 2019. They've pretty much quite clearly hinted towards holding for now Federal Funds futures not anticipating any type of rate change for at least the next 10 months. And so I would say, uh, and this is very similar as well for the ECB, these central banks now largely in autopilot for the time being. Um, so I'm not expecting too much from this. We will of course be here to cover the Fed in full on Wednesday night. The summary of economic projections could be quite interesting. Any updates to to that, um, you know, the SEP has generally on the rate side been relatively bad at predicting the future path of interest rates. And so of course it continues to remain under the spotlight of how valid of an indicator or how necessary it is in terms of providing transparency if it doesn't really provide a whole great deal of accuracy. Same thing being said, actually with Christine Lagarde, according to the FT this morning. I mean, obviously, it's quite an important one for her. It's her first kind of run out as official press conference that she'll have to deliver. But I think Christine's perfectly equipped from experience and skill point of view to be able to handle that type of pressurized situation. But one thing that she has done is she's preparing for sweeping review of the ECB strategy. So this would be the only time the second time in basically the 20-year history of the inception of the euro that ECB policy is going to be fully reviewed. And, you know, credit to Lagarde to come in to kind of pull the trigger on that, certainly establishing her position at the helm. Now, the areas are just basically taking stock of what has happened thus far— the advent of things like quantitative easing, targeted long-term refinancing operations, negative interest rates and so on. Also going to look at things like the medium-term inflation objective being kept between 0% and 2%, whether that is still valid in today's new kind of policy norm when we have things like unconventional policy tools. And then also future challenges ahead: cryptocurrencies, inequality, climate change. So perhaps slightly less sensitive to financial markets, but all things that obviously do need to be looked at to safeguard the future. So yeah, I just thought overall with the ECB and the Fed, I wouldn't be expecting too much. Definitely warrants though monitoring both of these events very closely, but I'd say they are significantly outweighed on the agenda by the tariff situation looming at the weekend, US and China, and then also secondary, the UK election that's coming up. Here's a look at the calendar, um, just in case you need it. I mean, we've already really talked about all of the major events that are happening. The only final thing that I will mention is you have US CPI coming out on Wednesday afternoon, as you can see in the center of this. That's the other real economic indicator that I'll be watching with, with some interest. Otherwise, if you do need to look at this calendar in more detail or have it on your desk as a reference point, then I did tweet it on Sunday, so you can catch it there. Otherwise, that's it. I'm not going to talk any further. As I said, I will go through the charts, mark them up from a technical perspective, and send it out in the, the weekly strategy report. So all things being well, I'll see you in the chat room, and hopefully you can join us on Wednesday night for the Fed as well as the full UK election coverage that we'll be doing throughout the night on Thursday. Okay, have a good week, guys.