Tropical Storm Barry to hit this weekend

Okay, very good morning to everyone. It is Friday the 12th of July. I hope you're well. And to any of those who attended the event that I was speaking at last night, thank you very much for coming. Hope you had a good evening and got some good insights from, from the other guests as well as myself on the panel. So thank you very much. If you're new to this channel, just giving you a quick reminder of what I generally do is, is just brief Our traders about, um, well, it's kind of a split briefing. I focus on the fundamentals. So if I flip over my screens, I look at the charts across different assets. So I've got a EURUSD— these are all futures charts— EURUSD top left, Cable center top, Gold futures in the right, DAX left, NASDAQ in the center, S&P 500 future on the center right. We've got the US T-note Future on the bottom right and WTI crude futures down at the bottom. So a cross-asset class mix, which for what I do, obviously I have other screens which I'm unable to share, but it allows me to monitor kind of cross-correlations to help me pick up on things like sentiment and so on and so forth. So the second part of what I'll do in this briefing, which is always a regular thing, is I'll get my colleague Sam Sam North, who's one of our mentors and traders here, and he looks at the market much more from a technical analysis perspective. So hopefully as well he can look at some, some levels that he's looking at for the day ahead and some potential trade setups and so on. But going straight into things, looking at the charts this morning, I spent— obviously I was off the desk yesterday afternoon, so spent a few hours off kind of watching the screens. But interesting to see that the S&P 500 here has managed to eventually get above and break up to fresh all-time highs. Looks like that technical breach of those previous highs that you can see quite clearly from the prior all-time highs that have really been the barrier for the price action for this week, just managing to bump above there. Obviously the focal point from a top-level point of view has been this kind of definitive shift, or I should say commitment towards market pricing that the Fed are in fact going to cut interest rates not just at the end of this month but most likely multiple times into the end of the year. And Asia, I guess, just filtering through and, and then breaking that level, just adding to a bit of price movement, bit of a pullback probably now, then just looking at, you know, support around that previous resistance point back at 0.0634 in the futures at least. One thing I did see that I thought was just quite interesting was really, if I widen this chart out, uh, there's a few things here. If you remember, we had non-farm payrolls at the end of last week, and if I just get a rectangle just so I can make it more clear, and this was the non-farm payroll reaction and then the ramp into the close on Wall Street. And then last night, to us, to a more shallow degree of course, but you had US CPI drop rally. It's almost like this market at the moment, people, you know, just looking to pick better entries to get back into the long again to follow this market higher. And certainly the Fed has been pivotal for that to play out. The trade war, of course, still needs to be monitored, but obviously that's taken a slight backseat respective of some recent Trump tweets given what the outcome of the G20 was. It's just interesting at the moment when you get getting these types of moves, whenever the market has sold off fairly violently, like with the case of the, the payrolls, on the reaction to that very strong headline figure, market then came surging back into the close. And then yesterday when we had the CPI, the core numbers, slight beat, in line year on year, but given the dovish positioning of markets, we initially went down only then to just rally up again. So yeah, I mean, it's going to be interesting next week. I was just talking to Sam. Next week you've got another variable to throw in the mix, which is corporate earnings season. I think we had companies like PepsiCo and so on speak or release their earnings, I should say, earlier this week. They're about the 28th largest by index weighting in the S&P, so by no means one of the larger companies. But next week we start getting the kind of big major Wall Street banks report, and then the week after will be the whole crux of earnings season. So yeah, that definitely is going to be interesting because going into the news, um, earnings season— this is a graphic I saw in the FT this morning, and it's looking at S&P 500 projected to report a 2.8% earnings drop. And as you can see, what's interesting here on these Q2 earnings growth projections is the idea that there's a very classic rotation here out of certain sectors and into others. So what you're getting is a, is a movement where defensives are really outperforming. So utilities and healthcare, the traditional areas of which are less sensitive to economic developments, they are set to actually perform the best. And on the flip side then, the more cyclical type of areas like technology, which has seen such stellar outperformance through you know, parts of 2017, 2018, they're the ones that are gonna get hit the most. Materials as well, you know, definitely on the backdrop of a more pessimistic global growth outlook. Obviously commodity prices could be subject to pullbacks and material firms getting hit as a byproduct of that. So yeah, quite interested to see how really, if you think about it, there's a bit of a disconnect going on at the moment between the micro and the macro. Because on a micro level it would appear that, well, really equity markets are showing that they're moving into a risk-off type of mentality. However, of course, equity markets by indices are up at record all-time high territory. And a lot of this, of course, is derived by the fact that the Fed are moving to such a dovish, more accommodative monetary policy. So yeah, it's going to be interesting to see how earnings season plays out. next week. I must say though that I think, um, all of the companies have done a pretty good job at communicating to analysts to lower their expectations so that they can basically meet or exceed them. So I think the bar is set pretty low at the moment, uh, to be honest. Um, talking about earnings and corporates, I was just looking at the DAX this morning. If you check out the DAX, it really is, uh, underperforming It's had quite a decent push lower in the futures through that pivot level just as we go through the cash open to retest what's been the recent lower bound of yesterday's range. Main headline this morning, Daimler, the German automaker, warns profits to be significantly below market expectations. So for Daimler, they've warned on profits now for the fourth time this year. I mean, I mean, that's just crazy when you think about it. A profit warning 4 times and it's only— we're in July. So the automotive sector, which of course is the most prevalent in terms of its sector allocation in the DAX index, that's going to feed through and subsequently weigh on BMW, Volkswagen and these other companies. So DAX is underperforming on the back of that news and hence you've got a bit of a disconnect between that market and the European indices at the moment. All right, quick run through some other headlines because there isn't really too much news for me to speak about. This was what I thought was particularly interesting from some of the speakers. Remember, after Powell, we knew that there was a whole host of speakers on Thursday and Friday. In fact, I think there's a total of 6 combination of voter, non-voting members of the FOMC, and What was really interesting was that obviously markets have perceived what Powell said, um, almost reignited this idea that perhaps the Fed could even go 50 basis points at the end of July. Now my view has always been that I think that that's not their strategy, and for the simplest reason of I don't think they want to run down their policy ammunition that quickly given the limited rate of which rates currently reside in America compared to previous eras gone by. Now what was very interesting, and to fit this kind of, um, thought path that I'm explaining, you had two Fed regional chiefs yesterday say a July rate cut may not be warranted. And to go into this in a bit more detail, the chap's called Bostic and Barkin. Bostic said he's skeptical of the need to cut rates, adding, quote, I am not seeing the storm clouds generating a storm yet. Barkin said unemployment low and consumer spending, it's hard to make a case for stepping on the gas just yet. So if you think about it, the market's gone into this massive kind of dovish mindset. However, I think that the market is overstep the mark in that respect. And so this— the purpose of this is Fed strategy to realign, uh, the, the communication, to play down basically this number. And this is a reflection of the federal funds futures, short-term interest rate futures. And, and what we can derive from this by its pricing is the probability of a 25 or a 50 basis point cut from the Federal Reserve. If you remember, after Powell spoke, that number was kind of moving up towards 40% almost, and now it's dropped in half again to 20%. So I think that this is a little Fed management rolling out some of their team, both of which are non-voting members, I must say, but to realign expectations that they're going to go 25. And not 50. Remember, the Fed have a 1-week blackout period, and so when we get to— we've basically got about another 7, 8 trading sessions where the Fed can communicate before then they go into the blackout period and they can't say anymore. So for me, I think this is pretty clear that the Fed have an intention that they don't want to do 50 by sending out the likes of 2 regional chiefs to stay start making more hawkish comments to realign the balance. Again, for those who need that quick refresher, here's the hawk-dove scale of both voting and non-voting members of the Fed. And so Bostic, you know, Bostic saying, I'm not seeing— I'm skeptical of the need to cut rates. Bostic is a dove. So that is a, that's a pretty unusual comment to make for a dove, and hence the reason why markets then respond. And that's again why it's, I think, a prudent strategy for the Fed to use someone like him specifically, because he, by talking hawkish, has more impact, if that makes sense. All right, moving on. One of the other things that we've been monitoring is what's going on in the weather systems in the Gulf of Mexico. This is one of the headlines on Bloomberg at the moment: oil falters as trade tension counters threat from tropical storm. I don't know, I slightly disagree with that interpretation, if I'm honest. I do get what they're saying. I think Trump was a little critical in some communication yesterday, talking about the fact that at the end of the G20, the US's belief was that China were going to commit to buying various different agricultural goods from the US, of which China is a big importer of. And so far, China have not been doing that to the pre-agreed levels. So Trump was a little critical yesterday. Does that kind of bring then the trade war risk back on the table and therefore net diminish demand? Well, to me, the other asset classes are not telling that same story to say that the market really reacted to that Trump comment because Gold is effectively lower from where it was about a day ago. T-notes remain suppressed from where they were as well about a day ago. And the other assets aren't really reacting in that way. Equities all-time highs, so to speak. So what I actually think this is, is remember what I was saying yesterday when these energy traders are monitoring weather patterns developing in the Atlantic, they're trading very much a trajectory of the developing weather system, not the actual storm in itself when it hits. And actually, I would say Tropical— what's called now Tropical Storm Barry, um, is almost old news because, um, what's going to happen is by basically— if you, you can see down here, I know it's quite small, let me see if I can make this bit bigger, but Basically, if you scroll down here, this is where the storm was as of, um, last night. This is where it's projected to be by Friday night, with anticipation of hitting the coastal line in the Gulf of Mexico by Saturday morning. Now, energy traders would have already priced this into crude oil when this was— this weather system was back down here back on Wednesday. The trade for me on this this story was Wednesday, um, and now it's— markets have priced this in. The actual landfall of the, the hurricane hitting, and even if it intensifies, and even if currently the status is that the Gulf of Mexico drillers have shut now 53% of oil production and 45% of natural gas output ahead of the storm as precautionary safety measures. Um, but that figure doesn't really matter because traders have already taken that assumption and traded the price. So I think the lack of response, if you're wondering why, even though the storm in itself is intensifying and is now causing actual physical disruption, is that this is already priced in and markets have already factored that in. So yeah, I don't, I don't really think, not unless there's a, an unexpected very severe intensification that again is not expected at this point, we kind of know what the status is, then I don't really see it really flaring up oil prices that much. Interesting in the commodity market, of course, is this idea that really Iran, after what looked like could have been another flare-up and confrontation given what happened with that BP cargo ship in the Straits of Hormuz, hasn't really continued, irrespective of what Trump said yesterday and what Rouhani, the Iranian president, said. There hasn't really been much to update on that issue. So something I definitely would look out for, but there's nothing really too much for me to report on that situation at the moment. So all things remaining equal, I mean, Sam will talk about this more technically, but perhaps the range, the upper and lower bound of yesterday's price action, will be the first near points of of technical relevancy, um, from a range point of view. All right, calendar today, what have we got? Well, we just had Chinese trade balance data come out. Let me just switch my screens so you can see what I'm talking about. Uh, we had exports plus 6.1%, imports plus 1.4%. Chinese Customs State that their external environment is complex and severe. The long-term trend, though, of improving has not changed. Not— no real reaction seen on the back of the Chinese data. But this morning, what have we got? IEA monthly report. So any energy traders, maybe worth just keeping an eye out what the current supply situation is, compliance and these types of things. World oil demand, is that going to move the market? It has done before, so So I certainly would keep an eye out for it. That's going to come at 9 AM in the morning. You've then got European industrial production at 10 o'clock. US PPI follows on, of course, from the CPI reading we had yesterday. That's kind of your main data point from the US this afternoon with Baker Hughes rig count, energy guys coming out this evening. Speakers, got a Bank of England speaker at 9 AM and then Fed's Evans, who is a voter but speaking on monetary policy independence. So not on topic, but just given some of the Bostic barking comments, um, Evans tends to be fairly centric in his view. But I definitely keep an eye out for that. That'll be at 3 PM. All right, that's it from me. So I'm gonna hand you over to, uh, Sam to look at the charts more technically. I'll catch you in the chat room. If not, I wish you a great weekend. Thanks very much, guys.

Hi everyone, hope we've all had a good week so far. So I'm going to look at the DAX breaking down. Let's bring up this, uh, this chart here. Really pushing through and finding support, as you'd expect. First real test of that yesterday low and the failed rejection to really go lower. If we look back to yesterday, you had a similar move, obviously nowhere near as big as this, but we pushed down, came back, and it really did struggle to get much higher. And then since then, you can see we have drifted lower. However, just looking at this level, I mean, for the breakdown this morning, we still got a fair way to go in terms of that reversal. I'm just having a look at the, the move really starting, uh, you know, before that open around half 7. Uh, be keeping an eye should we get any movement back towards that, that area. It's having a quick look here as well. You can see we're almost testing again this trend line that broke for that final leg down. And just having a look here, you know, on the 5-minute chart, you can see just how strong a level that was on the retest of the market. So we had the 1, 2, 3 test for the trend line first, uh, retracement back to that level, good resistance back down to the low. I'm sure people would have taken that as an opportunity. However, knocking on the door again, just how strong that level could be remains to be seen. I would actually favor the market looking to break that now, and you can see it's just having a go at doing so. How's that dragging through to US equities? Well, I'm sure you saw on, on, on Twitter yesterday Donald Trump tweeting about the Dow Jones late to the party in terms of the the all-time highs, but it got there, it got there eventually. And you can see yesterday and again this morning just pushing through its high that we had back in October last year, end of September, October. And that's, uh, that's really pushing on. And people have to start ordering the, uh, the 30,000 hats, uh, again, uh, shortly, uh, for, for the Dow Jones. And looking more intraday, I mean, yesterday the inflation number wasn't as bad, but yeah, I mean, it only came down briefly before pushing on. And, and you've got to favor this market to the upside, I guess, for, for now. While it's had a decent week again, and, you know, you may have a bit of profit taking into the back end of the week, and certainly be marking up all these previous highs that you see from previous sessions this morning and yesterday for any potential areas to get long. In terms of those, those trend lines which work so well for equities and terms of sort of gauges of sentiment. You can see there's nothing really of interest as of yet. Just having a quick look here, you can see maybe the fact that we broke here is short-term important, but we're looking like we just found support on what was the previous sort of low from that, uh, that push higher. So we're keeping an eye on the retest of this trend line should it come. But other than that, I think long from lower down certainly looks like a good trade for The Dow Jones and the S&P similar in that you've got these retests of any of these previous highs to consider before looking to, to get in. And if we do push lower into the back end of the session, would certainly be focusing on again the retest of these trend lines that broke in the early hours of the Asian session around 1 AM. 3,000, the pivot as well, which could come in at the same time. So for US equities, I think you've got to favor the upside. Uh, today if you can get it a bit lower down. Looking at the currencies, euro yesterday, uh, we did push higher in the morning before coming back down. The inflation number, like we said, was a tiny bit better, slashed in line, but not as dovish now as expected was the, the rear for, for the Fed is, is why we have pushed lower again. Can we get a bit higher? R1 and the yesterday high retest of the trend line will be point where people are looking at the pivot. Obviously remains quite key here. We broke through, found support. So if that was to come back down and get tested, which was a really key level for the last two sessions, um, that could be your, your line in the sand where buyers may be in control around that area above, sellers below, and we could drift back down to towards today's lows and yesterday's lows as well. This trend line marking up quite nicely with the low that we had back on Wednesday afternoon. So for a couple of the, the currencies, you can see similar reactions between the euro and the pound. You look at yesterday's price action, it was, it was pretty much exactly the, the same. I know we had a decent break higher in, uh, pound yesterday above this, this trend line, came back post-inflation, great opportunity to have got long. And once we broke through, we did then drift down to test near enough the low of the day. So this trend as well will be something I'd have on just to see what happens should we push down. It marks up quite nicely now with the current low of the day. But opportunity-wise, you've got to see a bit of data out in the morning, nothing too exciting for the pound or the euro, but some US numbers in the afternoon which could really be the, the opportunity for the currencies to get involved from, from then on. But R1 remains quite important with yesterday's low. The pivot is same in euro. Whether you'd want to get long again there without seeing a reaction, uh, probably not the best idea to do so. Having a look over at gold as we're just seeing, uh, that try to push higher. Wouldn't get again too, too carried away with this. You've got some resistance traded yesterday which is just 14 14.9. You can see here, uh, which has been actually a good level pretty much for the, the last couple of weeks. So I'll be keeping an eye on that as a line in the sand. Can that hold, or is it the opportunity to get long above that to target back towards 14.19.3, which was a great opportunity to have got short post-data on the Classic of that level? To the downside, does look like we're, we're trending higher from, from the, the current lows. Let's have a look to see if we can get some sort of trend line in. Only got the two tests, so be interested to see what happens there. And at the moment, that would come in with the, the morning low from half six. That's a price perhaps just getting squeezed in. Um, I know we have broken the high of the day, so if we can get a retest of that as well, it's always a little opportunity. Whether the volume would really be there to take that trade on or not, not too sure. Oil, just to wrap things up, you can see relatively low volume traded for now, relatively range-bound, uh, with the resistance 1 and the S1 combining that for now. Uh, if we're favoring the upside to continue, R1, yesterday's high, and even the, the closing high as well, um, would be one— you'd want those to clear with $61 handle before getting in. We know what, uh, oil was like with that, uh, when we start trending early morning. If we get that volume through for the break of this, this trend as well, while not necessarily the best one in the world, you can see we are just making a few higher highs, uh, so a higher lows I should say. So a break of that retest may well see a good opportunity to get short. But with this market, I think for now you've got to favor the upside. And it may well be that you're looking later on in the day, can these highs break, when's the right time of the day to get in, uh, and it might be a bit higher up for that, uh, that market in particular. Just a quick look over at DAX again just to wrap things up. That trend line on the XYZ test here pushing through, uh, and you might just start to see Euro Stoxx and the S&P just come back to test near enough the breakdown levels as well. In fact, you can see the S&P not far away from that R1. So keep an eye on the DAX if trading US equities in the morning, or if looking at US equities in the morning, whether you'd want to get in a trade or not. Now, probably unlikely. Um, hope you all have a good trading day. Big shout out to the England cricket team for, for beating the Aussies yesterday. I'm sure we're all Looking forward to the final on Sunday, and of course the big one today, Federer versus Nadal. We all know who Anthony wants, he's fanboying Federer, but the GOAT himself, the King of Clay, I'm sure will turn up as well. It'll be a great game, but I hope you all enjoy today. The sun seems to be shining here in London, and I hope you have a great weekend.