Trump-Kim honeymoon is over

Very good morning, Thursday, 28th of February, last day of the month. Then let's have a look at what we've got in the news and then a look ahead for the day. And then Sam will jump on, of course, and do his kind of technical review of the charts. But just having a quick look across the different assets, a relatively muted open, a little bit of euro strength outperforming, slight divergence between in the top left EURUSD outperforming, up about 10 pips comparative to cable down 10. One above, one below this pivot level in the futures I'm looking at here. So we'll have a look potentially a reason of why the euro might be just outperforming a little bit. We'll get into those headlines in a second. Otherwise, a bit of seesaw price action in global equities, but nothing really definitive breaking in either direction. Net-net, I mean, if you look at the volatility in the S&P here as we've gone through the last 24, 48 hours. Essentially, we are in a range, but we've had some quite decent downside initially, recovered, and then we kind of dipped overnight. There's a few people looking obviously at this Trump-Kim summit in Vietnam, which has kind of ended rather abruptly, as reasoning behind some of the weakness. The local market in South Korea, the KOSPI stock index, underperforming slightly on the back of that, and we can drill into that in a second, a bit more detail. But otherwise, gold as well, a little bit of a pickup after what was a break of a technical level more than anything else yesterday. So these lines still remain as they were from the prior day's session. And so just coming up actually to a fairly interesting point here. I don't want to go into it too much because I'll leave Sam to, to go into this, but you can see when we broke the bottom end of that trend line, we kind of really pressed lower quite quickly. But having recovered overnight since really UK and Europe came in— in fact, Asia, it remained depressed or suppressed, I should say— and as we move back above pivot, just bringing back in that trend line, which would be the fourth test at that level. So maybe worth watching that, also lining up with some of the support points down from two days ago on Tuesday. Oil markets, slight negative, a bit of a pullback from some of the, the move from yesterday, but again, nothing too groundbreaking. Finding a bit of resistance around that previous top that we had at the end of last week and beginning of this week. So what, what's been happening? What has the news been? Well, some of the volatility, of course, in equities has been a momentary reaction, if you like, to the US Trade Secretary yesterday So let's just bring up the chap so at least you know what he looks like. This of course is Robert Lighthizer, the US Trade Representative, and he was making some comments in front of the House Ways and Means Committee in Washington yesterday. Now specifically, everyone's been kind of building up this idea about the positive developments that have been occurring on the China-US trade negotiations. To the point of which— let me just bring this into shot. I mean, obviously we've had the Fed do its radical dovish shift, but also the progression on the trade talks has added to the recovery. And actually, as we come to the end of this month, the performance of the S&P 500 from the beginning of the year to the end of February, so the 2-month period, is the best performance the S&P has had since 1987. To put it in context. So that puts us right back at the basically the, the 5th ever in history's best performance that we've had, bearing in mind that one of these is kind of recovery from the Great Depression situation. So I mean, obviously if we look at this S&P chart on a much longer time frame, now this is kind of the, the story of where we've been, but you can see here, I mean, that's just You think that that fall was bad and aggressive, but, you know, the rally back that we've had is, is particularly impressive at this point. And obviously hitting that key technical resistance level, which is proving a significant barrier at the moment to further gains, that this 2800 handle. So trade war stuff has been quite positive, and the reason why markets were a little bit sensitive yesterday initially did dip was because this chap started changing his tone a little bit, saying, "We're looking for significant structural changes." And particularly, he was looking at the fact that, you remember, China said that basically they're going to stump up and start spending more money buying US agricultural goods, which is a major, uh, kind of trade revenue stream for the US, as China being a big buyer for things like soybeans in particular, which we know But what the US is saying is that, well, it's about intellectual property rights and technology transfers, this more nitty-gritty stuff that really is a lot more complicated. And actually, fine, you can throw some money at the problem, but you still haven't really made significant changes. You're still manipulating your currency. You know, we are willing— and Trump just said this at the end of his press conference with Korea— He said, if we don't get what we want, what we want, I am the type of guy that's willing to walk away from a deal. So all of a sudden, the US has gone from sounding quite positive with this to now quite a reversal where now it's looking not that the deal is going to break down, but I guess it's a little bit— we're over the honeymoon period and this is back to reality. And I think that latter point explains why the market has initial knee-jerk reaction when Lighthizer spoke, but then recovers fairly quickly because ultimately we are nowhere near, I feel, a concrete signed trade deal. You know, the extension of the trade truce is probably going to be extended, prolonged, protracted periods where they basically get to a very slow kind of deal in the end. Yeah, I mean, good question, Will, in the chat. Could Trump have set this up? Um, you know, it's a good point. It's— he kind of gets people on board, he, he instigates a very aggressive stock market recovery, which obviously he has kind of weaponized politically as the benchmark for economic health. So has he kind of won on that side, managed what was looking like a very nervous situation for, for him given the kind of global market collapse almost at the end of last year. And so now he can kind of turn the screw a little bit and go back to being a bit more aggressive in that respect. Yeah, and then another point, obviously, and this is where we get up to with, um, as Will is saying in the chat and I'll go into now. You've had this Trump-Kim summit. Let me just broaden this out and it will give you a very quick overview of what exactly has been happening. So what I'm going to do is Bloomberg do this quite neat kind of graphic on the side of what's been going on. So quickly run through it just so you're up to speed. Trump and Kim end their summit without a joint public statement. Whenever that happens, you know that that's not good. That means that they've not managed to make any kind of concrete developments, and so therefore they kind of— the meeting abruptly ends and there is no definitive conclusion of matters. So no agreements reached. The KOSPI moves down 1.8%, the most since October 2018. So significant reaction in the local market. They discussed ways to advance their advanced denuclearization and economy and so on. Bloomberg saying the S&P 500 futures hit their lows. I mean, there's a little bit of reaction overnight, I would agree, but I think people are making a little bit of a mountain out of a molehill with this story at the moment. Then Trump goes on and he's just given his press conference. I think China will be a big help, bigger than most people know. Trump says North Korea wanted full lifting of sanctions, and that's what they were disagreeing upon at that point. So yeah, the Trump-China stuff I think could be quite interesting, and let's see how it plays out with the China relationship on, on the trade side of things. Does he use this now to blame China and say, well, this is really the fault of China not doing enough to persuade North Korea to do what is necessary to get a deal done. Could be quite an interesting angle if he was to go down that. But all in all, net-net, I think the main thing here is that this type of story is very short-termist. There's a minor reaction in markets, but nothing I feel is really sustainable. Just things to monitor in the longer term. The incredible thing is if you look at any major newswire this morning, or if you turn on Bloomberg or CNBC, absolutely no one is talking about India and Pakistan this morning. Such is the world of financial news and just media in general. I think this is how quickly, even though obviously these events are absolutely terrible for those involved, in reality, from a market's point of view, it's just of little consideration in terms of broader asset class global market impact, unless these things were to develop. And with the Korean summit, I think I wasn't really expecting anything other than this, to be honest. And so I think the reaction effect has been reversed already, and I continue to expect that to be the case. I don't think this is really a big story. Okay, let's move on to Brexit. Obviously, we had the parliamentary amendment votes last night, and as you can tell by the way that sterling was really reacting last night, it was an absolute non-event because the cat's already out the bag. We knew what was going to happen. The Prime Minister avoided confrontation with her ministers by backing down and agreeing to give Parliament the option that of postponing Brexit rather than crashing out without a deal. So if you remember, one of the key amendments was from the Labour Party's Yvette Cooper. Her amendment was accepted. 502 lawmakers voted for it, 20 against. The 20 were members of the ERG, obviously the more strong-minded Brexiteers of that group. Which would mean that May's commitment now is to hold a vote on March 14th on whether to delay Brexit. If Parliament has rejected her deal, leaving without a deal. So 80 abstained, but she'd already kind of conceded on this point, so it wasn't really a surprise. So where does this leave us now? Well, this is a what next for Brexit, I guess, tree that we could look at. And here what we've got is March 12th is now the new deadline. So again, 2 weeks, kick the can down the road 2 weeks, and we've kicked the can again, and now the next deadline is March 12th. Now one thing here is that we were hearing some quite strong concessions coming the way of obviously the senior member of the ERG, Jacob Rees-Mogg, who's been a complicated figure for Theresa May to manage in this process. But essentially the way that this is going now, and this is what we've been discussing for many weeks, is that if you're a Brexiteer, it's not really a case now about deal or no deal, if no deal is now taken off the table. It's now about accepting a deal you're not necessarily particularly happy with, or there's a risk of no Brexit at all. And so by backing them into the corner, Theresa May then forces them, if anything, to just go, well, a bad deal is better than not having any Brexit at all. And so therefore they're forced to vote in her favor. And this is kind of now seemingly— seems the way that this is going, which was as to be expected. Now this gives you a bit of a breakdown of what could happen in the coming weeks. So if you go down the right-hand side, let's say Theresa May— there's enough now pressure on both sides, they come to the table, some legally binding annex is put into the documentation around the Northern Ireland backstop, which appeases then Parliament as well as European politicians, and a deal is accepted. We have an orderly exit, and the final deal signing happens then at that EU summit ahead of March 29th. The opposite, of course, would be Theresa May still struggles to get through her deal. And that means then the day after there's a vote on no deal, and let's say no deal is rejected. So that absolutely would be the case in my opinion because there's enough cross-party support to avert that scenario. And that means then they vote on extension. How long is the extension? How, what ways is it going to be termed in order to have Europe agree to it as well in future. That then gets accepted and it gets signed off at the March summit. So, net-net, we're going to know in the coming weeks which way this is going to go. We're either going to have an orderly exit through the deal accepted and we move into transition, or we get an extension. And I would say on the balance, this is growing in expectation that the extension is going to happen. The question mark is for how long— 2 months up to 2 years, as we discussed yesterday. Now, a couple of comments from some of the big banks. Goldman's obviously been pumping out their, their kind of view on this quite regularly. Goldman Sachs have cut their chances now, given what's developed, to a no deal to about 10%. They previously had this at 15%. And actually, if I just click on the article, this is on Reuters today. So they've said that they've raised the chances of an extension to Article 50 to 55% from 50%, while unchanged 35%, the probability of a no Brexit. So again, most probable an extension of Article 50. Depending on the length of the extension would be how powerful the pound reacts to the upside. The longer the extension, the more positive that would be. 35% of a no-Brexit scenario. Now obviously that would be incredibly Sterling positive, but obviously there's a lot of things that need to happen for that to materialize, like a second referendum potentially then leading to a new general election, a totally different outlook for a government and its— what it's going to do with Brexit overall. A no-deal, 10%. I, as I've said before, I think no deal is more like, in my mind, 5% or less. I really think that's just not going to happen given the, the awareness of the risks. And this is parliamentarians that are voting on it, not the public. Goldman's also a separate article. I did tweet all of these from the Amplify account this morning, so do take a read if you get a second. They were talking about Goldman says to bet on higher pound despite trade becoming a crowded bet. So basically what they were saying was that we could see further appreciation in the pound as this gets increasingly more likely that we're going to get an extension. Well, then people who have kind of hedged their positions need to be unwound, leading then to them getting out of that trade. And as a byproduct, as a function of exiting that it's going to pop then. There's kind of a short squeeze cable higher, and so we could see upside not just in the relief but Brexit hedges being unwound. Key resistance obviously we've traded at, at the moment is that September high. That's worked out in the last day or so and hit that pretty much to the tick and has come off slightly. But obviously any breach above this, you got the handle at 135 and then the bigger prevailing target being what would be quite an interesting area, because if we look at these— that high and that low there would come in at around the 137 handle. That would be a very strong target if we were to start punching higher, if we confirm down that long extension route. Okay, final thing I want to talk about is ECB's Villeroy. Now, not everyone might be completely familiar with who this is, but this is the front runner— not Jens Weidmann, this chap— to, um, be the next ECB president, taking over from Mario Draghi in October later this year. Now, he came out in an article overnight, and he was talking about keeping interest rates below zero, because you remember there's 3 key major interest rates in the ECB. The deposit rate of which still remains at -0.4%. But what Villeroy was saying is that interest rates below zero for too long may hinder the ECB's policy from trickling down to the economy. So he's just talking, in summary, about the adverse effects if we were to keep negative interest rates for too long and what that means for the ability for banks to function in appropriate and efficient way that would be more beneficial for the economy, essentially. So this would be in itself a kind of hawkish type approach. Um, not that it's— we're anywhere near this from happening, but given that he is the front runner for the presidency role, obviously the markets are quite sensitive to any commentary that he's making now and in the foreseeable months. And this is the first time we've heard this kind of idea come in from someone so potentially influential. So a little bit of upside maybe in euro, and perhaps that explains that slight discrepancy between the euro outperforming the pound a little bit in the major pairs. You have had as well some German data earlier this morning that came in the form of the German state CPIs, and they have picked up a little bit, which probably helps that move as well. A month month basis. Saxony +0.3%, previously -1%, and the other state CPIs will follow. So maybe that's just helped and led to some support in addition as well. Um, final thing, uh, because I did forget to mention it when we were going over China, this is, uh, manufacturing. We had the manufacturing PMI data out from China overnight. I think the Kejun one comes out tonight. So this is the government-led one, but you can see here manufacturing continues to remain in contraction, non-manufacturing still fairly consistent. But obviously this is a nation where we're monitoring the manufacturing side with particular attention, and new export orders continue to decline quite rapidly. One thing I would say with this though is don't forget there was a series of domestic holidays obviously Chinese New Year when we locked down for a week in mainland China, the global slowdown, uncertainty on the trade war, so usual suspects. However, new orders and import output prices rose, and business expectations of both manufacturing services improved. So it would be a little bit misleading, I think, to just jump on this thinking that, well, it's a complete downturn, because because as the headline suggests, there were some upside surprises, uh, as just mentioned. So hence the reason why market's not really reacting to this in a negative way, because underlying it is actually some supportive information within its constituents that forms that report. Calendar-wise, what have we got? So we have the morning pretty quiet overall. To be honest. Um, as we go through, German state CPI is probably worth warrant monitoring given if they go the way of Saxony. Brandenburg's just come out +0.6, previous -0.5 month-on-month CPI. Um, during the US afternoon, we have the weekly jobless claims. Again, I'm not really anticipating any market move off the back of that, and we have the initial GDP for Q4. We've— from the US, we've then got Chicago PMI, which could be quite interesting as well, just given the weakness that we've seen in other kind of associated regional data. Speakers starts to pick up in intensity a little bit, so probably worth marking this on your calendars. 1 o'clock Feds Klerida, Feds Bostic, Feds Harker, Feds Kaplan. So the first one is the most important, is a voter, has a neutral stance. The others are non-voting members at this point. All right, so in summary— sorry, I'll transition my screen. This is the calendar. These were the speakers I was just talking about, so make sure you have those noted down. In summary then, I would say a relatively calm, open to proceedings, nothing really spectacular going on, I think, other than a slight, slight negative read across in the Asia-Pacific session on the back of a pretty abrupt end and no real concrete agreements coming out of the, the US and North Korea talks. But overall, I think the market will brush that off very quickly. The China-US trade war even though Lighthizer's made some fairly, um, downbeat comments. I think we're over that already. So I think those two big stories are kind of fairly passive in terms of market ramification. The Brexit thing is nothing new at all, and actually today my expectations are things will remain relatively quiet. Now the real pressure cooker starts building up, of course, as we get closer in towards another 12 days when that Does she have a deal to bring, or do we then go back to Parliament and vote to remove officially then no deal? So yeah, pretty— I'm pretty neutral, I guess, if I was describing it as from a fundamental point of view. I don't really have any bias on the day given the news that we've just discussed this morning. With that in mind, probably the technicals are going to be key, of course. So I'll hand you over to Sam and let him go over things.

Yeah, thanks, Ant. Yeah, I kind of echo that in that bias-wise I don't really necessarily have one today. So I will start off with the pound, just bringing that into picture now. As you can see, it's just come to a higher point that has been trading at this morning. So we're keeping an eye on that. I think the pivot now you might as well not really have on there as a level of interest. It has been chopped through a couple of times. But with, you know, with the sentiment of the pound, it's, it's quite clearly over the last few days gone higher. So I think if you were to sort of look for the trading opportunity, maybe the breaks above these levels is, is not a bad one. I guess you could have the— and it's probably not the most amazing trend line, but we had a bit of a break out of that and the pivot. So if we were— actually, it's not a bad trend line, to be honest. If we were to get a little retest back of that area, the pivot and the trend, I think it's not bad, not a bad little trade to, to sort of get in targeting maybe the, the high of, of the day. And if it can go yesterday as well, obviously on that longer term chart that high that we made yesterday was the highest we've had for, for quite some time. And, uh, I think, you know, unless we were to have, you know, maybe a few more positive developments, it's not the worst place in the world coming to, well, the last day of the month where people might start to take a bit of profit. Obviously rejecting yesterday the, the 20th of September level, but intraday-wise, yeah, it's not a bad bad little trade to have a look at on that sort of break of that trend retest, uh, as well. Euro, I mean, it's, it's trying, it's trying to, to grind higher. I think it's, it's still worth on, on the euro to have these, these trend lines that are, uh, sort of well respected. I'm just drawing that on roughly there. You can see again just pushing higher off, off the that each time, and it might still be worth just having it, having that on. So if we do get a break lower, the trend line could be the one that gives way. We saw how that acted in gold, like Ant mentioned at the beginning of the briefing. Once that trend line really had broken, you can see the extension lower from the S1, the break of it, the retest was, was a really good trade. And, and gold is pushing higher on the fact that the dollar index is on its lower points of the day. Trade opportunity-wise, uh, for, for gold, like Ant mentioned, that sort of retest of that trend line, previous low of yesterday, sort of 1327.4, 1327.5, I think is, is a nice enough area to, to sort of have on the charts. The only thing perhaps would make you not want to take it up there is, is just the speed of, of it going, and if the dollar continues to, to weaken, really. Off that. Aussie dollar, um, a bit of a spike this morning, but we're contained, and the support level that we have on the day is, is massive, as is, as it was yesterday, and then really the, uh, sort of overnight support on the 22nd. So definitely a key support level to keep an eye on. And even if we were to break that, just be a bit careful because a few ticks below that you've got the, the previous high on that 22nd here. So a bit of a zone 20 and 29, but the support level obviously being tested quite well. If we knock it down, we are pretty much in the sort of area where we open the day as well. So quite flat. And, and that sort of summarizes a couple of these markets. Oil, which had a decent push yesterday post-DOE, sort of confirming a decent draw. The pivot's been, been tested a few times, and you know, if that wasn't to hold, the, the key sort of potential line in the sand, if you like. 56.31, 56.30, that low that we had post— uh, just before DOE, I should say— is, is an area to keep an eye on. Um, from the, the tops of the day, let's have a look if we can get some sort of trend line. Yeah, we can. We've got multiple tests on that. So if you're looking for the long, uh, in oil to sort of continue the recovery it had from that, that breakdown on the Trump week, maybe something like this is not a bad opportunity, uh, break of that trend. Let's have a quick look over just how equities are trading. So the DAX just recovering a bit, as is Euro Stoxx from this morning, although just briefly, just coming off those recovery levels a touch. And, and similar in the, uh, in the States as well, uh, we've just had a bit of a breather. But as was the case for a while. When Trump speaks, equities go down just on the worry that he might say something really bad, and then go higher once he finishes. And it seems like that might have been the case. Key level though, intraday, the pivot. You've also got that as the 2700, uh, on the, the future. Is that 2700? No, 2790 on the, um, on the future. So again, above Maybe you're looking to, to get in with the buyers, and you can imagine this potential trend line would have broken by then. If you like the idea of the short, I think it's also not a bad place. So would be a one to, to be contested with, uh, and it's similar sort of trade opportunity like this has happened on a few days where you just get those trend lines in the morning and then you get the breakdown, similar to NASDAQ yesterday where you get that let me have a look where it was. I don't think it was that one. Maybe it was the, the Dow Jones. But yeah, similar sort of move where you get a trend forming and then you get that push down, the sort of snap back. And, uh, would be one to, to bear in mind if you, if you like the, the look of, of equities to perhaps continue this sort of drift lower that we've had. But pivot important for the S&P. Uh, the pound I'd be keeping an eye on, uh, just that trendline break. But I wouldn't go chasing today. I wouldn't go chasing today. I think that's the, the key, the key thing to, to take, uh, take out of that. Any questions, as usual, please, please do get them in the chat. And if not, I'll catch you later on.