Theresa May Finally Concedes Brexit Delay

Hi guys, good morning. It's Wednesday, 27th of February, just gone half 8 here in London. We'll have a quick look over how the markets are trading right now, a few of the stories from yesterday and overnight, and, and what to look forward to for the rest of the day and the week. You might have noticed if you're looking at your charts just coming in or, um, having seen overnight, you can see there's a gap in the market on the CME related products. So here for oil, example, for example, you can see is where I surf. We've got the gap in price there for the S&P and the currencies as well, gold top right. So here, this, uh, this story coming from, uh, the fact that CME technical glitch halts futures trading. So, you know, there is a downside, if you like, to electronic trading. This does happen every now and again, but the reason you've got the, the gap in your market is purely down to a glitch, uh, which happened sort of, uh, overnight, uh, during the Asian session trade, which, you know, is the, the lowest volume but the highest growing in, in terms of a number of sort of contracts that are getting traded. That, you know, it is increasing. But yet the reason, uh, that you see the gap, uh, in your charts today, because of that technical glitch, normal service is resumed. However, the way the gaps work, you know, it's always worth keeping an eye on it. And you can see, for example, Here, if we just look at euro, I'll just clean things up a bit. Where we gapped higher— or lower, I should say— overnight, we've already looked to have filled that this morning. So that is definitely opportunity-wise something you should all be sort of aware of and looking for that gap fill, albeit down to the fact that there was a glitch. No real other reason that markets can, can gap, not too dissimilar, uh, overnight. Well, you can see how the markets are currently trading. If we just bring the pound into picture here, we're currently trading at levels not seen since the 11th of October, just on futures, almost printing, or did just print, uh, close to 133 there. So what better place to start really than Brexit? Yesterday we had obviously May speaking around sort of midday, half 12, and, uh, really the key sort of finding from this is, uh, you know, May has bowed to MPs' quit threats and signals the Brexit delay. Was this expected? Yes. Was it largely priced in? Yes. And really, you can see how— if I just bring the, the, the pound chart into picture from yesterday, you can see the, the rise that we had really from just before she was speaking. So into the sort of late morning, 9 into 12, we did push higher, came back, albeit to find resistance on what was previously, the high of the day, uh, and we did push and we continued to, to do so now. So quite a key level where we can see already we've tested 3 times. The importance of this, as just mentioned, is the high that we had from 11th of October. Is there much more in this? You know, I think if you are medium-term long, it's a great place to de-risk a touch. You know, the saying goes, um, buy the rumor, sell the fact. You might start to see potential bit of profit-taking before we then maybe get another leg higher. But yesterday, yeah, Theresa May for the first time admitted that Brexit could be put on pause. Previously had obviously been saying how this was not going to be the case, we're going to leave on, on March the 29th. And I think no one really believed her, and the market certainly didn't, as the avoidance of a hard Brexit and the extension of Article 50 is kind of what has been priced in. A good article here, and I'll post this in the, in the chat in, uh, in time to come, is from the Daily Mail, um, which I'd recommend just having a read over. Um, not many times the Daily Mail makes it into the morning briefing, so excuse the, uh, the showbiz comments on the right-hand side. Um, what's currently going on with Towie and Made in Chelsea I don't think will be quite too relevant for you guys here. Um, but the important points here of that delay, it's is, is just to identify what the, the next sort of key dates and votes will be. So yesterday was sort of branded around the 12th, the 13th of March would be ones to be aware of. So that's not too far away, and of course we're only 30 days really from, uh, the, the exit date, which we've got to sort of have a view now that that is going to definitely really be delayed. So just over a month until that, but on March 12th, the vote on on PM's deal. And by sort of delaying the vote, which was obviously scheduled for today, the idea is that she had, you know, developed a bit more time with Brussels and got some concessions herself and can come back with a better deal to Parliament. And overnight, obviously, she made the comments about how the PM should do their duty and vote it through. Whether that happens, I think, is up for debate. Personally, I think, you know, the March 12th vote getting voted through is unlikely, and that's kind of what this says here. So good analysis here by Jack Dool at the Daily Mail. So this vote here to go through on the March 12th, and basically the summary here: if— and it is a big if— she succeeds, Britain could leave the EU with only a short delay after March 29th to pass essential Brexit legalization. Also, what's quite interesting— we'll come on to the other votes on the subsequent days after that, but just from a betting perspective, you might be able to see this, zoom in on the recording later if not, but UK to leave the EU with no Brexit deal before 1st of April, you can see 5/1. So quite a few interesting odds here to sort of be aware of on Oddschecker. Another UK-EU referendum at the moment, 2 to 1, so not really that unlikely. And we at Amplify here did a poll just as Theresa May had started speaking yesterday on what we think, or what do you guys think more importantly, the Brexit outcome would be. And yeah, so we've had just over 200 votes, which isn't, you know, not a bad little audience. 23% on the deal, 39% for no deal, and 38% for no Brexit. You can see what I voted for there as well, but it's tight. And the fact that no Brexit has still got that vote is kind of in tune with what the market is expecting. Please go back to the charts and have a look here. The, the rise that we've had really from the 1.28, but the overall year as well, has been quite significant. And showing that that hard Brexit, yeah, pushed to a side. The chance of, um, you know, no, no deal, that's now being, you know, avoided even more. So I think, like I was saying earlier, Theresa May was the only one saying that she wanted to get that deal through in time and that that was going to happen. It's not the case. And obviously we've, we've sort of had this relief rally, if you like. But as mentioned, not a bad place to perhaps de-risk a touch. However, one market pound-related that I really do like the look of, and we talked about this in, in yesterday's briefing, is the, the pound against the— or the euro against the pound here. So you can see we're now currently below— well, this is here back in, in May 2017. We're now below that level, really key. Um, I've entered the trade overnight. I know a few others have as well. Perhaps we do get a bit of a retracement back to where we had initially found such long-term support around here. Before that final push lower. Hence the idea of taking a bit of profit is not a bad way to go about it. But yeah, technically we're, we're low, we're lowest we've been for almost 2 years. And the overall target for this trade for me would be looking for the, the sort of the April 2017 and November 2016 double bottom. So the pound to strengthen over the coming weeks, I think, is, is— or months, I should say— is not a bad way to look at even if we do have a bit of a, bit of a pause in the meantime, between time. So back to March 12th, that's— they say that's not voted through is probably is, is going to be expected. I think, you know, anything can happen in, in, uh, in a couple of weeks, we know that. Um, but you know, the likelihood of that getting, uh, sort of voted through is, is, is slim, I would say. Then you've got the no-deal vote on March 13th. So if the PM cannot get her deal through before March 12th, which is you know, probably not going to be the case. Uh, the following day, uh, she will table a motion asking MPs if they support leaving without a deal. Now, of course, the, um, the, uh, the, the MPs, the, the market, everyone is, is, is trying to avoid that idea of the no deal, and, and that's sort of been priced in. So the MPs are obviously going to, you know, vote this through, that the avoidance of of the no deal. And of course, the— I mean, here you can see that last point within this section. The absolute focus should be working on to get a deal and leaving 29th of March. Um, off these sort of comments and these rhetoric yesterday, the pound actually did just drop off a bit. So if I just go back to that chart, you can see around sort of, uh, 12:30 to 1 o'clock that period here, we did come lower, and it was on this insistence that we're going to get, um, down, uh, get a deal done by April 29th, and if not, we can work on a no deal, we can make a no deal work. The market's not looking like that. However, really, from the reaction we then saw with the delay, and the market's not buying the whole idea of getting that, uh, sort of through. So March the 14th then comes, or will come, and you've got the delayed Brexit vote. Um, if the Commons reject leaving without deal, the government will table a motion the following day asking if MPs want to ask EU for an extension to Article 50. The important thing here is, you know, asking EU, they have to agree to it. But I think it's got to a point where a delay is going to be beneficial for both. How long is the delay going to be is up for debate. I remember yesterday I was just sort of asking Anthony Cheung, you know, we've agreed for a while there's going to be a bit of an extension, but how long for? I mean, it could be, you know, up to a couple of years, some sort of EU officials have been saying. But at the moment, sort of scheduled in for sort of 3 months. So the idea of that delay is one to keep an eye on, you know, how long that could go through. MPs in all likelihood will force her to ask the EU for the delay. And, you know, while the extension would need approval by the other EU leaders, a 3-month extension dragging out the process until the end of June has been suggested. So that at the moment is your sort of your baseline. That's what I would be, uh, be looking on, uh, for there. So back to just the chart and how we're trading. You can see we're currently again testing that high. So, you know, obviously if you're listening to the briefing, uh, live right now, that could be a bit of an opportunity should we get the breakthrough, because you can see there's almost a bit of free room if it's— if you'd like up to sort of 30 ticks above, and even the key level 1.3350 as well. And Euro/Pound, while the Euro is actually strong today against the dollar, as you can see my top left chart, just breaking through that, that gap that we had, uh, the Euro/Pound significantly below, uh, that level, uh, as well. Uh, why do I think— so I just had a question in the chat, why do I think GB strength against Euro, what's the driver, Brexit? Well, I think, yeah, it's a lot of it is, is down to the sort of the, the relief rally for, for Brexit, which is, you know, if we have a look at the pound against the euro, had been, you know, pushing higher at the beginning, uh, or the end of the year, uh, last year. I think that's a bit of the relief coming through. Also the, the data, yeah, the eurozone sort of economic weakness I think is, is having an impact on it. And I think this, this technical level is is massively key. So whether, you know, we would, um, warrant a move all the way down to say, uh, 0.84 in the euro pound, I think this, this technical level from a gauge of sentiment is, is so key. Um, you know, I, I remember looking at the, the S&P back in, uh, late October when we, we found resistance on that trend line. If we had broken above that, I do believe we would have continued to push higher and made a new all-time high. I think these markets are very sentiment-driven as well, and technical levels can help that. So now we're below here, I think we're going to need something, uh, quite, quite bearish for, for the pound to get us back up. I think sentiment now is, okay, let's get short. If you— people have been long, the stops are getting triggered, and you know, the next opportunity perhaps to, to get long is a bit lower down. Maybe some of the handles might attract some buyers. as well. So yeah, that's the, the sort of the key dates to, to be aware of. In the meantime, uh, looking, uh, elsewhere, we, we also had, uh, Jerome Powell's, uh, testimony, testimony from, from yesterday. If I just bring in, you know, just the, the article on that, it's, uh, when there's a saying in football, um, if I just bring this into picture where, say, an attacking team doesn't score in 90 minutes and has no opportunity to. It's, uh, you know, we could play all night and, and not score. And I think the, the saying for Jerome Powell— I'm just trying to drag this into picture, but it's not really having any of it— uh, is, you know, he could have talked all day and the market wouldn't really have been too interested in, in, in really moving off that. And historically, it has been a bit of a snooze fest, if you like. A couple of comments, uh, yesterday of, of note. But, um, yeah, it's— here we got, yeah, going forward our policy decisions will continue to be data dependent. Heard this all before. And we'll take into new accounts— into account new information as economic conditions and the outlook evolve. We're in no rush to make a judgment about changes in policy. Um, that continues today. We'll come on to the calendar in a moment. Um, but really it's, um, yeah, it's a bit of a non-event for now. And the dollar overnight was, was relatively unchanged yesterday, didn't do too much. Um, the other sort of markets, euro and pound, did, did sort of move on their own accord, but the dollar as itself was, was quite, uh, range-bound and choppy, uh, just going for— yeah. So here, obviously, I know a few of you listen to the Ranskoki morning call, really good way to sort of start the day. And here, yeah, FX markets are relatively quiet as the Dixie roamed just above 96, and that has really been the case as well. Having a look elsewhere, just at the markets overnight to where we've got today, I think it's, it's, um, I'm just going to add another text to this. Last couple of days, oil has been, um, quite an interesting market to trade from both a technical and fundamental point of view. We had the Trump tweet on the Monday, literally at the top of this red candle, just around 1 o'clock or just before. And that tweet obviously moving price quite significantly to the downside. Those tweets again, just for your reference: oil prices getting too high, OPEC please relax, take it easy, etc., etc. And then we did come back down. However, OPEC source yesterday And I am not the OPEC source, I just retweeted it, but OPEC allies to stick to oil supply cutting pact, push for more adherence despite criticism by Trump, Gulf OPEC source. And we did snap back and respond by pushing higher, uh, which could kind of be in the, the phase of the day anyway. Uh, and you know, looking back at all those Trump tweets that Anthony went through sort of in the briefing, the price that oil has been on It's not like every single tweet he had has been the top of oil. It's more the persistence that keeps coming in, um, that, that sort of drives price down. So while, yeah, understandably that move on Monday came in, I wouldn't be too surprised to see a full reversal of that by, by the end of the week, if I'm being honest. We also had the, the API out overnight, uh, which was, uh, well, you can see here, was, was one of the largest sort of API moves that we've seen really. It's been, been, uh, I mean, what's that, 55, 50, you know, over $50, uh, 50 cents on that move. Surprise, uh, draw here. We can see the API reading coming in. So crude, uh, while it was a 3 million build expected, you know, a bit of a shock to the market in being a minus 4 million draw, and markets responding as you would expect. However, Just having a look at oil price now. We are coming back to a pretty interesting area, which was the resistance point before, uh, price broke through. So that and the pivot, quite key level to be aware of. Obviously we've got the, the DOE numbers out later today as well. Interestingly, I'm just going to switch back to the pounders. There's a couple of tweets that I do want to go over, um, as well. So you've got JP Morgan thinking that the pound is fully discounted. Good news on Brexit front sort of matches up with my view that it's not a bad place to potentially take a, a bit of profit. Still facing key resistance around 1.33 on the spot, kind of where we're trading now, uh, the September high in pound against the dollar, and the euro 85.41 key support. Only decisive breaks of these barriers would confirm a higher scale change. And I think that's the way to look at these markets now, is is drawing those lines in the sand. Okay, if we go above here or below there, then we can get a continuation or a reversal looking at it that way as well. Another interesting tweet, and this is just more an opinion one, um, here. Bottom line, and I'm not quoting anyone, Saudi wants to see a higher oil price. That wouldn't surprise me, uh, to sort of see oil grind higher. I think, you know, this— that one Trump tweet isn't going to be enough to really bring oil all the way down. I think you would need quite a bit more, uh, on that, on that really. Having a look elsewhere, I'm just going to bring in the, the overall picture of the markets. You can see equities actually just coming down a bit this morning. We had news overnight, uh, of conflict between India and Pakistan, and I've actually, you know, Saif is going to come on at the back end of the briefing just to do a little a little talk on that. Obviously growing up in Lahore, so he's the man in the know to sort of give, uh, you know, his two pence on that situation. So could be a reason why we're starting to see equities just drift lower. I know the FTSE is pushing down, the DAX is already down quite a bit, as you can see on my left-hand chart. So equities at the moment finishing, uh, the sort of the hour quite bearish. So one to keep an eye on, especially with the the US is closing on, or finishing this hour on yesterday's lows. Uh, so quite interesting to sort of see how, how that unfolds. However, let's just go on to look at the, the equities in more details. It would take a bit of a surprise to, to have us finish, uh, the month lower, which would bring us to this tweet here. So looking like the S&P 500 will be higher in both January and February. So since 19 50 has happened 27 times, and the final 10 months were higher 25 of those 27. Of course, you know, previous performance isn't always a prediction of future, but just one to bear in mind. I think, you know, the, the whole recession fears, the global slowdown has been put on hold. Um, the Fed have become dovish. You know, Trump didn't really disappoint the doves too much yesterday. So overall, I do think we can see equity continue to sort of push on, albeit you can understand the reasons perhaps where we're coming down at the moment. Another interesting market, uh, headline I should say from yesterday is, is that Goldman do see, um, if I just bring this in, uh, may have— that global economy may have bottomed out already. And you're starting to see that prediction here. I'll just drag that into picture, um, on the recovery in China. And that of course is, you know, while this has sort of been happening for the last, well, couple of months really, literally from, from Boxing Day, you can see they're starting to predict that we might get a bit of recovery, uh, in, in China. And obviously that will filter through as well. On the, um, on the equity front, I think it is, is it is going to be quite key just to, to see where we close this hour. If I just bring the S&P in, if we can get a real close below that low from yesterday which we're testing now, uh, the market could have another leg here. So 3 minutes before 9 o'clock, uh, to, to be aware of. Having a look at, uh, the data calendar, uh, just before I bring Mr. Ali on to have a chat, we have got some data out 10, uh, from the, the eurozone. So economic sentiment. So just having a quick look at the, the sort of the recent trend of that market, it's only going one direction now. Uh, that is expected to sort of hold firm around 106s. Uh, that's out at 10 AM. But yeah, maybe the opportunity here could be to start to see this trend just turn around again. So the range for that reading is, is 105 to 106, so quite small. So opportunity of a break higher, maybe if you start to get a number to the 108s, I think that could be a good opportunity perhaps as well. Also scrolling through, I mentioned we've got the DOE numbers in the afternoon. In their usual slot, 3:30, following the 4 PM Thursday last week because of the bank holiday. Before that though, you've got some factory orders at the US and some inflation numbers from January, uh, for, for Canada as well. Trump is currently in Vietnam at the moment, uh, with the sort of second summit, um, with, with Kim Jong-un. However, not really expected for there to be many developments, so the market not really buying into that being a market mover right now. They've still got disagreements over what denuclearization actually really means. One to keep an eye out for, but I think there's better, uh, sort of opportunities out there, and this could be something that is really sort of focused on later in the day. So just as equities do take another leg here, I'm just going to bring Saif on to get his opinion, uh, on, on what he thinks about the, the India and Pakistan situation. So Well, yeah, safe. So do you think this is something that equities are going to start buying into and we do get another leg lower, or is this just maybe not even the reason that we are coming down?

I don't think this is necessarily why the market's going down. We try to be unbiased. Yes, trying to be unbiased over here. I think it's a bit of risk. It's akin to escalations between Israel and Palestine. Flashpoints of conflict, which necessarily won't— won't necessarily filter through into the broader markets. However, can pose some risks because both are nuclear states, both are being backed into corners. So, I think there has just been actually a news headline that 2 pilots and 1 civilian were killed as an Indian Air Force chopper crashed in India-controlled Kashmir. Now, I think if military personnel were to be killed, then India would react retaliate.

Okay, and then that's when we could start to see a further risk to markets.

Yeah, so what's happening is we've got a new prime minister in Pakistan, and Modi, who's the current prime minister in India, is coming up for elections. So I think there's a real risk of political-driven warfare. As we all know, this is not unique to India, it's not unique to the UK or America. Nationalism obviously increases your, your pull or your draw when it comes to general elections. So with Modi facing general elections, it's definitely a time to show a strong hand as opposed to a weak hand. And Imran Khan, obviously being a new prime minister of Pakistan, will also feel that he needs to show a strong hand. But then if things do begin to escalate, yeah, it can get very dangerous. Both are nuclear countries. And yeah, I mean, is it likely? No, because what you're seeing is both countries at the moment are trying to bring in foreign investment. Obviously, India, one of the fastest growing economies in the world, any political risk or economic risk would obviously scare investors. Pakistan, very much the same. Just had a meeting with Mohammed bin Salman, who promised to invest about $20 billion in Pakistan. Any sort of further escalation And these tensions will be bad for both, both countries. Um, but definitely worth— I think Imran Khan is going to be addressing the state or the nation shortly. I think he's going to continue along the path of saying that we don't want to escalate this further. However, if these claims are true that two pilots, two Indian pilots were killed, yeah, uh, in a separate attack— this is not the attack that happened overnight, it was two jets with no casualties and 2 military personnel who were sort of arrested. One's in hospital being treated for injuries, one is for interrogation. So that wouldn't— that would cause escalation, but not as much as, let's say, if 2 pilots—

okay, so your message to traders is keep an eye, but maybe not the biggest risk currently right now?

Extreme tail risk. Yeah, okay, would be my— would be my view. However, things can escalate quite dramatically in that region of the world. Ah, okay, right. So this is another point. So Pakistan's main ally in this matter is China. So China is spending tens of billions of pounds on the southern coast of Pakistan, um, something called Gwadar. And this is sort of a— wait, do we have Google Maps? Let's bring up Google Maps.

I'll show you. Just gonna bring up Google Maps.

Yeah, I guess the risk really isn't so much of these two countries, despite them both being military— sorry, nuclear countries. The real risk is sort of if it escalates and that tail risk really does start to pick up, it's about the countries which are allied. So this is Pakistan over here. Screen.

Yeah, no.

So there's this place called Gwadar, which is somewhere—

testing your geography here.

Yeah, on the spot. Here we are. What China's been doing recently, they're spending tens of billions of pounds developing one of the largest ports in Southeast region of the world over here. And then they're running transport links from Gwadar all the way up through Pakistan right into China, which is over here. So obviously it's in China's best interest to make sure that they have the support of Pakistan, and Pakistan supports China. And then if you see Iran as well, Iran would then be supporting Pakistan. And then you got China, Pakistan, and Iran on one side, and then probably Russia, if they had to weigh in, they'd probably weigh in against America, which then means against India. So India's here, this would be sort of the West supporting it, United States, the UK, and then with Pakistan you're gonna have the likes of China and Russia weighing in. So any escalations on that front, it really depends on which countries want to get involved. Those things do continue to escalate, and any real, real risk, which again is extremely unlikely, the likelihood of this is very, very minimal. I'd say sub-1% of any real escalation here. Probably some tit-for-tat, some some controlled escalation would be the most likely scenario. In terms of market impact, I don't think anything immediately. It's gonna be, you know, weeks, I'd say, until, you know, there's tit-for-tat, something escalates further, other countries get involved. Right now, the UN is trying to bring peace, Saudi Arabia is trying to bring peace. It'll be interesting to see if Trump weighs in on this. He is in Vietnam. Vietnam in, well, not too far away from that region. So this would obviously be something that people in the Southeast region would be paying attention to. Should I transition it back over?

Yeah.

So obviously Vietnam just being here, this whole region, two nuclear countries, two strong military forces, any skirmishes between them, there's a risk of it filtering through into the whole region. So maybe if the conversation is brewing in Vietnam, then Trump may address it. And that would very much be in support of India as opposed to being, let's say, conciliatory. I don't imagine he's going to be trying to promote a peaceful, peaceful end. You know, the guy claims that he'll rain down fire and fury. Imagine same rhetoric.

Yeah.

Yeah. So I guess that is a risk. Markets may be concerned. And we know how Americans are. They probably have no idea that this escalation was brewing. In the first place. So now that it's headline news on Bloomberg and Trump may tweet about it, they may panic, overreact, and we may see market impact. But tail risk, it's worth talking about.

Cheers, thank you very, very much, Saif. So yeah, just, you know, one to keep an eye out for, I think the sort of summary of that is. And just having a look back at the back end of that calendar speaker-wise to be aware of, we had some comments out of Kuroda this morning and Weidmann speaking at the same time that that data is coming out. So just one to bear in mind, obviously, uh, in the running for potentially the ECB being one of the most hawkish members of that as well. So to bear in mind. And then you've got the second part, two, of Jerome Powell's testimony. If anyone wants to put themselves through that again, uh, fair play would be my summary of that. But yeah, any questions, as usual, please do, uh, do get them in, in the chat. Um, equities you know, they did close below. So one to keep an eye on, but whether we can get a follow-through of that remains to be seen. Highlights obviously be keeping an eye on the pound, how we trade at that, uh, that sort of multi-month level. Uh, as well, some data out this, uh, this morning, a bit of lower-tier data in the US. Jerome Powell's testimony, oil data as well. Should be an interesting day ahead. So I hope you'll have a great day, uh, and catch you later on.