Theresa May faces Brexit judgement day at the polls

Okay, very good morning everyone. It is Thursday, 23rd of May. I hope everyone is doing well. I know I did meet— Sam and I and some of the Amplify team, some other people on the trading floor last night. So if you are watching this, thank you very much for giving up your evening, and I hope you found the session insightful. But cracking on and looking at the markets this morning, there are definitely a few subjects that I want to cover, one of which is the chart you can see to the side of me at the moment, which is a graphic of the Sensex. So the Sensex and the Nifty, the local equity markets in India, hitting record all-time highs. We'll have a look at that in a, in a second. But other subjects I'm going to cover, obviously Brexit is a big one. Today is the European parliamentary elections, so local elections are happening in regards to across Britain today, and this has led to lots of rumors circulating yesterday about Theresa May's potential resignation. So we can discuss that. Looking at the pound momentarily this morning before Sam really goes into it in great, greater detail technically, you can see here this center kind of top chart, the pound already through yesterday's low point Very decent amount of selling here on initial challenge through that S1 level. So we'll look at that. We also did have— I know if you were looking at the charts, you probably wouldn't recognize it because the actual movement when I was here last night was, was pretty minimal. You had the FOMC minutes. So what did they say? I can give you a quick overview with that, very short and sweet. And then we can look at a little update on trade wars and then some important economic data coming out of the eurozone. Shortly, and that's going to be the flash manufacturing service PMIs. Always important economic data for European assets if you're trading. But overall, looking at the, the broader kind of risk sentiment, I'd say for the market open, the Indian stock markets definitely bucked the trend by moving higher. Otherwise, the broader context overnight, the Asia-Pacific session was generally a negative one. and that's kind of reflected on the charts this morning. So European, uh, and US stock futures are seen lower and moving lower at this point in time. Uh, generally speaking then, fixed income futures supported on the back of that. Gold, uh, albeit flat on the session, has also been rising over the last 2 hours or so. So you've kind of got a little traditional flight to quality move across markets. The obviously big story or overall narrative to that respect continues to be the the trade war and what we've had with this latest kind of escalation with being a little bit more surgical in the breakdown of the, the technology focus now for these companies being selected by the blacklist from the US and how China are responding and so on. So that's kind of still the overriding prevailing theme for broader markets. The sterling situation, a little bit more kind of focused, if you like, But let me just run through then the news over the next 10-15 minutes, and then I'll hand you over to Sam and he can give you a kind of a bit more of a look at some of the setups today that he's looking at. So one thing is, just to quickly round off, a couple of stats that I thought I'd share in regards to, to India. So I'm not sure how much attention or awareness you have to this matter, but obviously India is one of the most populous and nations on the planet. And so carrying out a general election is a, is a huge undertaking. And actually it's been taking place over several weeks. So basically it went in phases where geographically each kind of area holds its own kind of miniaturized vote, which then all contributes to an overall national one, which the results we will have coming forward in the next day or so. However, the initial exit polls are suggesting that Narendra Modi is going to have a second term. And the way that financial markets tend to react is that, you know, political uncertainty generally plays out negatively in market price, for one, but also in the context of today's political environment, not for India but for nearly every country, opposition parties to take hold of what can often be this kind of popular sentiment, very much based around quite radical reforms and very ambitious spending programs in order to cultivate kind of popularity. So that not happening then adds to that continuity from a foreign investment point of view, uh, and then, you know, kind of prices reflect that and immediately kind of jump up in what would be kind of classically known as a bit of a relief rally, if you like. In assets. So will Indian markets continue to soar like they have done in response to this overnight? Probably not. This is that initial, like I said, relief as a human emotion. It doesn't last forever. Yeah, it's a fairly short thing. So, um, it's very interesting. Of course, um, obviously if you remember, uh, this is kind of just looking at the broader macro way in which these types of political events tend to play out. You'll remember 2 months, 2 and a half months ago, there was a particular flare-up between India and Pakistan. And I was kind of asking myself on the way in this morning, when was the last time I read a headline about the conflict between India and Pakistan? And it was, you know, amazing how the timing couldn't have been better I'll leave it to you to read between the lines of whether or not, what you think about that. But, you know, there's a strong argument to say then that Modi's had a pretty questionable first term on different regards, but obviously instilling nationalist pride is a very strong emotive factor for the voting electorate. And so almost perfectly timed, that coming into the run-in of the election, and it's gone absolutely quiet on that front because job now done. And it's looking like it, you know, tactically, if that was any way part of the whole strategy, it certainly has paid dividends in that respect. But yeah, just a couple of thoughts there, not going to dwell on it. That's a very isolated thing. As I said, India outperformed performing the markets generally a little bit lower. Let's move on though, let's talk Brexit for a second. This is kind of the main developing story, and as I was saying yesterday, it wouldn't be surprising at all to hear rumors start to circulate about Theresa May's potential resignation. You know, I think that's absolutely not gonna happen today, in my opinion. The reason why is because obviously these local elections are happening, this like, why would you resign on the day of that happening? Now she's come this far, she needs, needs to now face the music on the result that comes on the back of this. And we know then that that sets us up for Friday. I think Friday could be the day then when she's going to reach the maximum pressure point on her leadership. Um, whether or not that is the time, yet to be seen, but definitely a few things are going to run over here about the current state of play. So a few things that have changed the game, and if you actually look at the pound this morning, it is underperforming. Um, okay, the dollar index is up 2 tenths. Some of this risk-off environment I mentioned generally tends to support the global reserve currency, i.e., the greenback. So both major pairs being slightly weighed on. EURUSD testing its, its respective, um, S1 for the euro. Obviously these PMIs coming up are crucial for the direction over the next couple of hours. But the pound is underperforming, and there's some key levels obviously coming up to the downside on a slightly longer timeframe. Sam will look at— but latest is Andrea Leadsom resigned late yesterday. Now obviously she is someone of senior stature within the kind of team that Theresa May had managed to cling on to. She said she no longer believed the government's approach will honour the result of the 2016 referendum. May's colleagues paid little attention to her. Remember, she did speak in the Commons yesterday. Most of them didn't even turn up. If you actually watched it, the usual kind of Wednesday PMQs and the Prime Minister, she's basically just talking to green benches, literally. So, you know, it does seem that The writing's on the wall. As bulletproof as Theresa May has become, now I guess it's just a moment of timing. So this is now being factored into markets. I do think that markets have not fully priced in a potential Boris Johnson kind of premiership, and for that to take place, the pound's going to move lower because even though I think that parliamentary arithmetic will not change even if he comes into power, meaning that he himself, as I discussed yesterday, will not be able to push through any other type of deal without a general election, which could reshape then the composition of those parliamentary seats. And I actually think part of the strategy for BoJo here is to pick up on the momentum of Farage's Brexit Party on the coattail of then what's happened in the European elections where the Tory Party will get decimated. He will blame that entirely on Theresa May's approach. He then benefits on the back of that. Farage is not going to run as Prime Minister and his party doesn't even have a manifesto. So that means then that that vote switches in then to him talking a tough game about willing to go down the route of no deal. He then needs to flirt and risk the, the episode of a general election. But given the state of what Labour looks like, if he can capture that Farage support, then that's the only way I can see him having any type of power. Otherwise, he faces the same consequence of a lack of ability to pass anything in Parliament like May has had. So yeah, just a couple of thoughts on that. According to people familiar with the matter, there is now no chance the cabinet will now back the withdrawal agreement bill. Most believe then that May now must cancel her plan to put the draft law to a vote in the first week of June. So a couple things to look out for here. Two people familiar with the situation said the so this is now going on to the 1922 Committee, so the quite powerful backbenchers, the kind of rank-and-file Conservative members. Two people familiar with the situation said the panel, because they have regular meetups on a weekly basis, decided not to change party rules to allow for an earlier vote of no confidence to get rid of May. So again, politics is very strategic. I I think they absolutely want her to be out campaigning today and then get absolutely hung, drawn, and quartered when the results come out for the local elections tomorrow. So an absolute conscious choice. Why would you change rules now to have a vote of no confidence? The vote of no confidence will be clearly evident in the public's vote, which you're likely to see play out with strength in the Brexit Party and then probably a movement in the Remain campaign towards voting for Lib Dem, for example. Committee chairman of that group, Graham Brady, told reporters that he'll meet with May on Friday. Both the Times and the Daily Mail reported yesterday that May is expected to announce a timetable for her departure on Friday. So that meeting probably will be very key tomorrow when she meets with Brady, whether or not we'll get her resignation tabled. At that point, or the timeline of exactly a specified date in the near term of when she's going to step aside. Now, with that being said, there was a few other graphics I quickly wanted to show you. This was one. Let's assume then that on probability— the balance of probabilities— that Theresa May's time is running up to its end. Now, for those who are unfamiliar with this process, maybe you weren't around when she initially became Prime Minister in 2016, This is the process. So in 2016, the leadership contest basically took the best part of 2 months. And actually, I remember at the time that was actually a fairly quicker than markets were expecting, because remember David Cameron, our dear old Davey, he did say that he would stay regardless of the vote, but obviously he just resigned the morning of. And that kind of threw out all these different candidates putting their party in the hat. And what happened there was Andrea Leadsom, so the lady who actually resigned from the cabinet last night, she was actually running against Theresa May, but she pulled out, and Theresa May was actually then crowned the winner at that point. So that process then took 2 months. Going off the way of which this works from a process, it could be speeded up and take just 1 month making it possible to find a new leader by the time before UK parliamentary summer recess kicks in, potentially. Now, this generally works in a staged process. The first stage is the Conservative Members of Parliament select their preferred candidates, and they go through this kind of system of then taking all of the candidates, and it goes through this kind of process of elimination before they get to the final stage, say the second stage, and then they vote on their final two candidates. So this can take a number of weeks to go through, but obviously we know Boris probably the most favored to win in that situation, at least at this point. This is just looking at some probabilities from Danske Bank about— and always, you know, one of the things that I do, and I encourage you all to do the same, is, you know, of course I have my own opinion about how I think these things will play out, But how do I form those opinions? Well, those opinions are very much formed on the back of— I read what other people think as well as what I think. I form basically my view on the back of what these banks— this is Danske Bank, but I'll look at other big US banks, UK banks. I'll look at their teams of researchers and read their research, read what's written, and understand what the talking heads are saying on Bloomberg TV, to try and listen to their arguments and then cherry-pick what I think is the most appropriate to formulate then a directional bias and how I think these things might play out. So here, Danske Bank, they've put percentages, and I like the fact they put their neck on the line. They're kind of saying, you know, these are the probabilities by percent of what they see for each of the potential outcomes. As we head towards the, the kind of end of October Brexit deadline. So they've got a second referendum at 20%, uh, a complete kind of, I guess, renegotiation down a Norwegian-style soft Brexit, 5%. I agree, that's incredibly small, I'd say, particularly if we're going to go heading down the route of a more Brexit-minded Conservative leader. The withdrawal bill passing, they've got at 20%. I'd say that number is ever decreasing by the day. At this point. A further extension, um, 25%. A new election, 15%. A no deal at 15%. So yeah, give you a bit of a, I guess, a better idea about the hierarchy of these options in which these banks are kind of looking at. For me, I would say, um, even though the prospect— so this is important between the short-term market movement and more medium term In the short term, I think the pound needs to move lower. I did say this yesterday, um, based on the premise that, as I said, I don't think the markets have priced in yet a kind of Boris Johnson potential leadership and the movement that that then gives for potential increase in a no deal. Now, I do still believe that a no deal absolutely will not happen because of the consequence it will have I don't think that Boris will see that through. Um, could it happen? Sure. But the probabilities for me, I'd put down at about 5%. New general election, I'd actually put slightly higher because that is actually an avenue I think that Boris could well be thinking down that route in order to have a more majority control in government, potentially. Um, or a further extension. I give a high probability to as well. And I, and I definitely think that given the way that this is shaping up, given the fact we need a new political leadership contest, we need summer recess, we come back, we still are stuck in the same kind of situation potentially that we are at the moment with this fraction between Brexiteer and Remain. That means then almost inevitable that the, the whole, the whole situation gets extended again. And if that did, I'd kind of foresee that to be around the March period into 2020. So yeah, a couple thoughts. I won't go any further than that. Fed minutes, as I said last night, didn't move the market, so I'm not going to spend any more than just going over the headlines here. The Fed minutes signal patience on rate moves for some time. Officials backed Powell's stance. Inflation dip likely transitory. So, um, I guess two points here. One, they're sticking the course. They're not kind of letting the market be their, their guide. Obviously, what I mean by that is fixed income markets would be indicative that the Fed should be in a much more dovish mindset, looking to cut interest rates towards the back end of this year. The Fed are saying they've already kind of turned dovish with no commitment to rate hikes in 2019. We feel that inflation, one of the key metrics, uh, this is a transitory phase in terms of its ongoing weakness that it's been seeing. Now, the second point I want to make on this is that these minutes are obviously dated. The FOMC meeting happened, what, 2 weeks ago? And what happened in the last 2 weeks, of course, we've had a complete breakdown in the trade negotiations and its latest bout of risk-off and uncertainty going forward. So for me, these minutes are rendered pretty much completely redundant, given the fact that the, the whole outlook has changed quite significantly, given this— what was a positive story on the trade growth narrative has now turned quite negative. That's all I'm gonna say on that point. Another thing though, on the trade front, you know, obviously I wasn't here, I was ill at the beginning of the week, but did manage to catch a little bit of the Steven Mnuchin conference he was giving yesterday. And he was just kind of reiterating the United States is at least a month from enacting on its proposed tariffs on $300 billion in Chinese imports as it studies the impact of American consumers. You know, you gotta love Trump. I mean, as a, as a strategy, he kind of ramps it up on the trade front, but then actually you still got a month. So even though the markets are obviously fairly spooked at the moment about this latest twist of events taking a kind of a negative spiral, That's not to say then in about 3 weeks' time he doesn't come back and they strike a new type of concession and deal to get it over the line. And almost from Trump's point of view, he gets to almost test the water and what he can get away with in trying to manage this negotiation. Maybe I'm giving the guy a little bit too much credit, but you know, it's not to say that what's happening now and has done with the breakdown in some of the equity rally that we've had, um, could not be reignited again should in this interim period before these actually being implemented, a deal coming back on the table, and again we get this kind of relief situation. For the moment though, we are still in a negative sentiment in the short term, certainly intraday at the moment. Okay, looking forward for the calendar for the session ahead, and then I'll pass you over to, to Sam. So definitely, uh, important economic data coming out momentarily. So what I'll do when Sam is on, I will post the numbers for the initial French PMIs as they come out. We would have wrapped up by then. You've got the German ones at half 8, uh, and then you've got German IFO at 9 with the eurozone Flash PMI is kind of the overall readings. These will be important, um, if you think about it. The one I'm most interested in is the German, obviously, Manufacturing PMI, which has been in quite clear contractionary territory for a while. Um, almost as a, again, relief, we stabilized but at an incredibly low level of around 44 last time round. It'll be interesting to see how that performs. Just having a look at the expectations here for the German number, that is for 44.8, so still relatively depressed. But keep an eye on the euro. It's been, you know, you— it's not been uncommon to see a decent 50 to 70 pip day on the back of how bad some of these data points have been before. Um, going into the afternoon, weekly jobless claims as per usual from the States. You have new home sales as well coming out. Otherwise, speakers fairly light. Some ECB members, Deguindos Lane speaking later on this morning, Kaplan from the Fed later, but a non-voting member on the FOMC at the moment. Okay, I'm gonna end there. I will catch you guys in the chat room. I'm gonna hand you over to Sam. As I said, I'll post the PMI data so he can see it and relay it to you as it comes out shortly. Thanks very much.

Hello guys and good morning. Happy voting day. We'll start off with, with the pound, but obviously worth keeping an eye even as I am just talking here and a couple of the markets as we are starting to get a couple of moves. Euro almost at S2 already, pound low of the day, and equities in the US and Europe on their lows as well. T-notes is pushing to the high with this dollar strength and safe haven flow. Gold is confused as what to do. We'll come on to gold in a moment, but just start with the, the pound here. I'm just going to put this onto a longer term chart and let me just drag this over. I actually just tweeted this, uh, as well, but you can see going back to Uh, if I just bring this on here, so 2017 low. Let me just move that away from the camera to start, so you'll have to trust me that I'll keep it there. Uh, going to the low that we had obviously on the, the flash crash around 126, that would join up. So you've got the handle there. You've also got the previous low from, it looks like, November, December. Around that point. What a great area of potential support for the pound. It's an area to keep an eye on if you're short. What a great place to take profit if you're long. I know you probably would want to, want to see a decent reaction, uh, around that point before looking to get in, but you can see just how well it's been respected before. Yes, I do agree with that. There's, you know, uh, more likelihood that there hasn't been enough downside priced in for, for Boris. But what an area, really keep an eye on that between 1.2574, the low that we had on the flash crash, and 1.26. It's a fantastic area to, to keep an eye on for sure. Also, longer term, while we're on it, have a quick look over at the euro. And you can see here, just dragging that across here, we're going back to 2017 levels as well on this point of support. If this was to go, and like I said, we're on the low of day and low of the, the year. Now, well, you can see suddenly you start talking about the December 2016 low. Uh, I know that's a long, long way away, but this support level is itself is massive, obviously trading 1.11 at the moment, which is pretty incredible considering, uh, 1.15 wasn't too long ago there. Intraday for, for these markets, I still think, you know, you're going to have days where there it pushes higher. But looking for that opportunity to short the false break isn't obviously a bad example of that. We've seen that last couple of days. To the upside, can we get back to 1, uh, 1170? Previous lows in the mix there from Tuesday, Wednesday, and this morning. That would be a place to sort of look at. Obviously, if it keeps going through the S2, you've got that longer term level in the mix there as well. But to just be a bit careful about getting short maybe too aggressively on that point. Looking at the Aussie dollar, and we'll come on to the yen as well, I know a couple people were short around that pivot. Some unfortunately did get stopped out. And just on that point, I think, you know, if you have a look at that pivot there, you'd— and you were to come in today, you still think, well, what a great area to have gone short. You know, you wouldn't have got stopped out there. And, you know, we say the zone for Aussie dollar to on the pivot or a level to it to be for. So if you have it at 68.98, well, the stop should be minimum, uh, well, 0.03. So you can see stop placement there would be above that area and the trade would have been fine. So I think for those that did get stopped out on that, just, uh, you know, a bit more patience, uh, on stop placement. Uh, having a look at the, uh, the pennant here, you can see we did break through this to the downside, uh, overnight. Can we get a retest of that whole area near the highs, uh, of the, the Asian session as well? 6882 on Aussie, quite a key point. And really that's a zone, you know, it's a zone around there that I would keep an eye on should we come back. Again, the dollar's strong, Aussie's weak after, uh, you know, despite a positive open after the election, uh, the idea that they're going to cut rates weighing on things. So that's obviously coming down as well. However, one market against the dollar, uh, that is pushing higher is the yen. Safe haven flow. I'm just seeing at the corner of my eye Eurostoxx on the low, which means the DAX is likely to be exactly the same. The opportunity here I think could come later in the day or week on a break of this, this trend from those lows. If we are to get a switch around and money flying back into your, your risk assets a break of this trend line could be the opportunity to the upside. At the moment, breaking the high of the day, key levels, uh, the high from Tuesday, which was a breakdown from the 20th, uh, as well around Monday, and the R2. But for now, I think dollar strength, unless it's against the yen, would be the favored way to, to go for. Uh, if we do get a switch of that, I'd wait patiently for the break of that trend wherever that decides to come in. Gold, another, another trade where people, you know, just perhaps got a bit caught out yesterday. And again, I'm gonna put this on to the longer term, and you can see we finally got that close below this trend, uh, earlier in the week. And where was the high of the day yesterday? Well, exactly right back on that trend line. So it's important, even trading intraday, look longer term, see where these levels are. And of course, if we were to get back above that trend line, it offers a good opportunity to get long. False break, good sign of a reversal. However, uh, you know, yesterday the high of the day was that point. Um, relatively confused then at the moment where to go. The sentiment, I would say, is still to the downside for gold despite the obvious safe haven flow you've seen this morning. I think there's better markets to trade unless we were to really maybe push above this trend line again or continue a break of that low. But whether that comes today or not, not too sure. Obviously worth keeping an eye on yesterday's low, which is today's low, as well as a bit of a range break to the downside. But unless we get above that trend line, I'm not too interested personally. Another market which you could say is in a range, uh, despite a decent move lower is oil. We've talked about this, this bottom part of the range to the top for the last few briefings. Basically the whole month of May is in this range. Yes, we broke lower. Yes, yesterday, and that lower point of the range we talked— or yesterday's range in the briefing, we talked about 6262 was just fantastic at holding. But you can see these lows that we're on now, going back to the 7th, the 13th, arguably again on the 14th, and then today is holding strong. 6078, around that area on the futures. Break below that, don't get too excited of a big push lower, as you still have 60 dollar handle and the low that we had on the 6th to keep an eye on as well. Equities, they're coming lower at the moment this morning. Um, I, I, again, you know, we had this, this push Monday. We've now reversed that. Uh, that was on the extension, obviously, the Huawei for, for 3 months. But negative headlines yesterday, EU, uh, EE, Vodafone, uh, suspending you know, their summer plans for Huawei. Uh, I mean, I think you go with the, uh, the risk-off here and, and, and look for opportunities too short. A bit of a break of a trend line, although it wasn't necessarily respected too well, uh, this morning. Uh, I think, you know, just one to be aware. I think there's better markets to have a look at. The FX today look quite good, uh, yen as well. If you were to get a switch around, there could be opportunity. Key levels of support, however, that low that we had back on the beginning of the week will be quite key. A break of that, then things could get interesting, uh, as that's sort of the last line of defense for now. I know, uh, and has just put in the, uh, the, the numbers from France, and we obviously do have some more coming out throughout the, the afternoon and and euro there has actually just snapped back a tiny bit and we're almost back at S1. So just on that euro, where the level I talked about, just a bit above here, 1.1170, place to keep an eye on. As usual, any questions, please do, uh, let myself or, or know, or anyone on the Amplified team, and we'll get back to you, of course. But if I don't speak to you, hope you'll have a great trading day.