UK General Election All But Confirmed & FOMC Preview

Hi guys, good morning. Wednesday the 30th of October, just gone 8 o'clock here in London. As you can see on my right-hand side, I've gone for the double whammy of Boris and Nigel. Reason being, I believe the one on the left could deliver the Brexit and the one on the right could ruin it, and I'll come on to the why that could well be the case, as we have all but confirmed an election on the 12th of December. So we'll have a quick start by running over the charts from yesterday and head over to the, the main stories which concern obviously the election update, and then a look forward to the FOMC rate decision, which we'll be covering live on our YouTube channel from half 5 ahead of the 6 PM announcement, obviously an hour earlier due to the clock change that took place Sunday. So quick look over markets as they're trading now. You can see actually in the last 15 minutes or so the pound has just pushed higher, taking out, albeit very, uh, briefly, uh, yesterday's high, just pushing above 129 on the futures. Quick 20 ticks push to the upside. Stocks in Europe quite contrast to yesterday, which were down at the open, just started more positively today. You can see overall yesterday, while choppy conditions were expected, there was a couple of opportunities, and we'll go through those now. Just think, obviously, ahead of the week really beginning from today, we've got a good data calendar. Obviously, you've got the, the Brexit updates, you've got some earnings coming out today, this morning, and then later today as well. It really felt like today is going to be where the week really begins. And you can see stocks, when they push lower, also did the same in the S&P. That, uh, led us to what was the previous high that we had on Monday, and that was a good opportunity to get long. And also trendline breaks, break above morning resistance, led to further good opportunities to the upside. On the flip side, at the same time, you had gold which did push lower actually in the morning. No real reason for it, just a big order coming through. And as with the many times that this does happen, you end up getting that full reversal from that triple bottom as well. You can see here taking place and finishing up around 4 o'clock. Currency-wise, euro did break a nice trend line actually. I think I've got the, the chart still marked up, and that provided a bit of an opportunity. Uh, just, I guess, a shame. And we were talking in the, in the chat room at the time, just a shame it happened really before the Fed, because certainly medium-term-wise it would have been a decent opportunity as well. You can see the break of this trend leading to a push above its R1 on the day, and that has actually confirmed this morning as well. The pound, relatively choppy, it has to be said, but did push higher throughout the morning on the idea that Labour had confirmed that they are down for December the election, uh, and then just drifted lower into really the confirmation of that. And we have of course pushed on today as well. Also oil, uh, good opportunities, it has to be said, for, for the brave that fancy the, the support, the retest of what had been such a strong, strong resistance previously. You can see we came down and tested that around $54.68, really strong zone, and led to a dollar and a bit recovery from that level. Uh, after breaking the 5540 handle, uh, around that area during the day. So we'll go through the APIs and the DOEs later, uh, of course, as we, we had those at the DOE at an earlier time as well. But, uh, yeah, relatively choppy day, but there were still some opportunities. I guess one overall to, to sit on their hands, whereas today certainly opportunity-wise I think there's going to be a lot more a lot more opportunities, not just from obviously evening, the FOMC, but before that as well as on the data calendar. We have some, uh, some good points coming out. Um, so yeah, make sure you do, you know, join us from, from half 5. We'll have the chat function, so any questions, feel free to, to, you know, put those in as well. Uh, yesterday, just gonna go quickly over the data as well. The only really point of note to have was the consumer confidence, which came in slightly worse than expected, 125.9 compared to that 128. So not a massive difference in the US, of course, ahead of the FOMC. Didn't really react too much to it overnight. You had some inline, um, Aussie dollar inflation numbers. It has actually risen since then, but more so on the weakness of the dollar. You've seen that in both the euro and the pound this morning. coming through. So those inflation numbers pretty much, uh, in line. Quick look at the data calendar before we get into, uh, the meat, uh, of the briefing. And you can just see throughout the whole day it's, it's jam-packed. We've had the Aussie numbers that we just talked about. You've got German unemployment change and rate at 8:55, so coming up in less than an hour. 10 o'clock, economic sentiment out of the EU along with industrial and services sentiment, consumer confidence You've got ADP numbers an hour earlier than usual because of that clock change, German preliminary inflation numbers, Bank of Canada rate decision, DOE at 2:30, and then the Fed from 6 o'clock, and Jerome Powell speaking half an hour later. Could be an incredible day, and that's of course not with any Brexit comments, uh, listed in there as well. So I'm looking forward to it, should be a good one. Uh, obviously the main UK Brexit general election, uh, chat has been confirmed as— well, all but confirmed, should we say. The timetable for today, just worth keeping an eye out, an ear out on this, is that the House of Lords will hold a vote on the election later today. They're expected to approve. It would be a pretty much— pretty big shock if they were not going to, to make it law of the election by the end of the week. So this would be December the 12th. There was a couple of rumors floating about that it was going to be either the 9th or the 11th, and actually would have been the first general election on a Wednesday in, well, many, many years. It just so happens that it's going to be the first December election since 1923, so the first December election in a very long time. So after the, the vote is approved and they're making it law by the end of the week November 6th is another date to keep an eye on as Parliament will be dissolved and therefore that 5-week campaign can begin. I'm sure Conservatives will be, you know, not looking to make the same mistakes as they did last time, where certainly their campaign was, was very limited, or certainly seemed that way anyway. A couple of theories on, um, on, on turnout during winter elections. A good article here on, uh Anthony Cheung on the BBC, just talking about some of the points you would think of. So you got bad weather. Obviously, the day of the Brexit vote, the referendum, if you remember, there was a massive storm and it was raining incredibly. Tubes were delayed and there was certainly a grumble within London that people couldn't get home to vote. However, a study from the University of Oxford actually said there's no correlation between the weather and the turnout. So unfortunately, it seems that there was no excuse for that EU referendum. So that theory has been put to bed. The shorter days is absolutely one to think about, of course, as the nights get— well, come earlier and the days are shorter. And therefore, there's already been rumors that polling stations, they're going to be additional lighting put in as well. So that's something to bear in mind as well going forward. Could it stop students voting? So this, you know, also yesterday one of the amendments that Labour were looking to pass through, one of the votes, was that 16-year-olds would have the chance to— I mean, I'm not sure many 16-year-olds would, and certainly when I was 16 I'd rather have been in a park drinking Super Strongbow, but yeah, that didn't get passed through. But could it stop students? Well, the most common end of university December-wise has been touted as 16th of December, so of course a lot of students may well be registered to vote where they are at uni. So if it had been after, then there could have been a bit of drama about that, but turns out not to be the case. As many are finished around 16th December, only a handful before. And of course, they could, well, change their postal vote location if they did want to as well. YouGov polling suggests 70% of students' votes were cast at their home constituency rather than their term-time address. So this would be something that maybe Labour would want to, you know, make sure that younger voters would change or be able to vote for that as well going forward. So I guess it comes on to another good article here just on the BBC, and this was sent out in the morning research, just a simple guide on the election. But the question's, I guess, why would Boris even want the election? And it's really going to come down to the same reasons that Theresa May did. In, in 2017. Of course, he didn't need to, to have one until December— well, until 2022. Um, but he's going to want to have more majority to pass through his deal and therefore effectively get Brexit done. So that's the reason. That was the pretty much the same reason Theresa May wanted it. Obviously, you can see from the 2 and a bit years since then, we've made no real progress at all. Going forward. So the vote's gonna obviously be, you know, as Jeremy Corbyn said, a once-in-a-generation vote. We had one of those 3 years ago, of course, but so maybe not so much as once in a generation. But it's gonna be one where a lot of the other policies are almost swept under the carpet. Of course, their manifestos and the policies that they'll be going around will obviously have some significance, but it's worth noting actually, just from 2015, what do voters, what do people feel most are the most important issues facing Britain today. Obviously you would have the EU and Brexit up at the top, but interestingly immigration and NHS have been on the decline there as well. So it will, I'm sure, come down to their Brexit stance, and worth just sort of going over that. You could argue the Brexit Party is gonna, you know, still try and stick about with leave on the whole idea of a no deal. The Lib Dems revoke Article 50. Labour, I mean, who knows, we know we're gonna renegotiate with the EU and then put that deal to a public vote is more likely not going to be their stance. I personally think they should, you know, do what the Lib Dems are doing and go down the route of you know, second referendum, revoke Article 50, let's go full-on remain. And actually, you might see a really big pickup there, whereas in the polls, obviously, they're struggling quite a bit at the moment. And of course, Conservatives going down the route of leave with Boris's new, uh, deal. So the point about, um, Nigel Farage and why he was in the, uh, the picture at the beginning of the briefing, you know, Boris at the moment, or Conservatives, are obviously well in charge of the polls at the moment, and that's, I think, fair enough. You know, he's come in and he's perhaps been quite hawkish in his chat, and maybe that's what the country needed and what Theresa May slightly lacked. And a lot of the Leave voters are quite united behind Boris, and if he doesn't mess it up, I think he wins quite nicely in that we do get that majority. Whether we could actually leave on the 31st or not, I think after the vote and everything come— everyone comes back, there's only 15 days before the 31st of Jan. Whether we can do that or not, I'm not too sure, but I think a Conservative win means Brexit does happen sooner rather than later. A lot of the Remain side are obviously spread out. You've got the flip side of Labour, the SNP, Lib Dems as well, so they would have to be quite strategic about that on where voters would go, and maybe they've got a plan the Remain side for that as well. But also it's worth keeping an eye on Brexit Party. Does Nigel Farage start piping up again to really, you know, say, you know, this is how we should do it, that Boris's deal isn't good enough, you know, like he has been saying a lot on his radio channel on LBC? If he's starting to, you know, pipe up again, he could well take a lot of those Conservative Leave voters away and therefore that majority comes under question. So it could ironically be the man that wanted Brexit be the reason that Brexit does not happen for quite a while again. So if I was Nigel, I would just sit tight if this is what you want. But whether he could do that or not, I think, will remain to be seen. It's been a— I think we've seen it was 19, 20s, it's been either Conservative or Labour government that's been in power. So while Lib Dems are starting to arise from the ashes after a disastrous campaign not so long ago, I think Labour really missed a trick here. And we might see a change in that over the coming 5 weeks from November 6th, but time will tell. Shall we say, as well. But yeah, good graphic here just going over the important issues here. You've also got the UK general election 2017, just the voting stance there. A lot of blue seats, just like Manchester City on a match day as well. So yeah, you can see this, the 2017 there as well. Just going through, uh, winners are chosen. You've got the general election numbers from there. 326 seats needed for a majority. The last one, Conservatives were only won the 318, hence the coalition with the DUP. Labour 262, SNP 35. Voter turnout 68.7. I would say we're, we're going to get higher than that. I think if there's decent odds on that, worth a go. 68.7 voter turnout as well. So today, worth keeping an eye just to see, um, that it's passed through the House of Lords, put into law, and then it's going to be a fun few weeks of polling, and that's going to move markets and talks of that. Just before we move on to the Fed, let's get the chart of the pound up because I think you're going to have 3 scenarios. Let me just load this chart up and remove everything. So where are we trading now in the futures? Let's call it 129 on the dot. Conservative majority, big majority. I think you, you know, by the end, by December 12th, we're above 136. I do believe that. I think there'll be a nice push from, from there as well if we were to have Labour majority, which I think is around 23 to 1. Uh, which is obviously, I think, fair enough odds for now. I'd see an also a push through. What I see the only downside for the pound, because I do see this general election is overall positive, the only downside would be a minority Conservative, or any minority really, just more, more uncertainty, the deal less likely to be pushed through, and we're back to square one, and 126 is traded on December 12th, in my opinion. So the risk-reward looks pretty good from where we're sitting now. I think the, the move higher recently is just the pricing out of that no deal. No deal is just not going to happen, uh, and we're going to have that general election. Also worth giving a shout out to, uh, the man, the myth, the legend, Anthony Cheung. Back, uh, 2 months ago I came across this and the, uh, the article he did on LinkedIn just saying how his view remains that we are heading to a general election, uh, as Parliament will now look to pressure a vote of no confidence. Well, that's just explained by an analyst, but just saying about the, the, the idea that no deal is not going to happen, that we're going to need a general election. So pretty much bang on, uh, here you can see end result: no deal does not materialize and the government secures a deal From a GBP perspective, much more volatility to come over the coming weeks. Absolutely happened, but large rallies will come in due course. So pretty much bang on there from, from Anthony Cheung here. The general election all but confirmed, and I would say unless Boris can mess this up, there's going to be a nice rally to come. Time of course will tell though as well. So 1.36 would be the target as things stand, uh, if we can just get through the messy 3 weeks. It's not going to be a straight line though, that's obviously worth pointing out as well. So the Fed coming up, uh, gonna be one to— an interesting one. I was just saying to, to Will, I, I personally believe this will be the last cut that we see, um, as things stand. The market priced more dovishly than that, but we'll come on to a couple couple of reasons, uh, why 90% priced in at the moment by investors, uh, a 0.25 basis point cut. However, Bloomberg's reading an article earlier, their surveys have it more priced at 75%, so slightly more on the hawkish surprise there. And the general chat I've just seen from, from Twitter and reading articles is that we're almost expecting or starting to price in, uh, in, uh, in to the markets a hawkish cut here as well, rather than the, your usual dovish one. All policymakers see risks from trade talks— this is nothing new— and weakness abroad. Those will generally still be, I'm sure, the, the main comments that come through. But some, uh, did view that the cuts in July and September were sufficient enough, uh, and I'm sure there will be dissenters about this cut if it was to happen. But 90% priced in from investors, and there's a nice graphic we'll come on to shortly which says it might be more like 20% according to, to some surveys as well. Speaking of what's been priced in, you've got one man who is absolutely loving life, and that has to be Donald Trump. He's got positive trade talks at the moment, just despite possible negative one from yesterday. But overall, he's happy. You've got stocks that are on all-time highs. You've got a Fed that's about to cut for the third time. I mean, he's played an absolute blinder here, it has to be said. Um, yeah, and the death of ISIS as well, despite getting booed at the weekend for it, uh, at a baseball match. Um, so worth, uh, you know, just pointing this out. You know, there, the stocks can't just keep going and going and going until the election. So I think Trump will— if he's not happy today, if we do have a hawkish cut, he may well start to pick up some hawkish rhetoric on the, the trade front. And we could be due for a bit of a correction lower. I guess from a technical point of view, we're not far away from this incredible trend that was just so well respected going back to July. And that's looking to come in. We could get that today around 3059. Could that be a top? Technically, why not? Um, and then if we do have it on the hawkish side and Trump starts slamming home about China that they're not buying enough agricultural goods like he did on overnight, or suddenly stories, you know, pick up more of a negative impetus and we do come, uh, down as well. We'll see, time will tell. Um, Powell is likely to communicate a pause while saying they're flexible— they are flexible if the economic outlook shifts significantly. Interestingly, uh, Powell is also following the playbook at the moment of a mentor, Alan Greenspan, who cut rates 3 times in mid-cycle adjustments. Of course, the word mid-cycle adjustment is how we started it back in July. Greenspan did this '95, '96, and '98 to counter risks September forecasts showed the FOMC saw interest rates hitting a bottom this year before raising slightly in 2021, so next year, to remain at the levels they would be after today. However, investors, as we were saying, slightly more dovish on this, and they're actually pricing in another quarter point cut by mid-2020. So there's that difference between what the market are expecting and then what the Fed are suggesting. Hence why I, I'm on the Fed side that I do think this will be the last one, and therefore we're going to see that hawkish reaction. And you see a bit of dollar strength come back in, you see stocks perhaps come under a touch of pressure, and gold as well. But that could be a good opportunity to get in gold lower down as then Trump, uh, returns more hawkish on trade talks. That's just my view at the moment. Of course, trade what you see, not what you think. as well. So yeah, a couple of, um, uh, comments from, uh, surveys here. Surveys from, from Bloomberg. Bloomberg economics experts: officials to adopt a meeting-by-meeting approach to evaluating the need for additional stimulus so as to appease hawkish-leaning members of the committee. However, from meeting to meeting in a slow-growth, low-inflation environment, officials will see greater need to provide additional support as well. The FOMC is divided between policymakers which favor insurance against risks from a manufacturing slump. We saw that as the worst in a long time, the ISM number a couple of weeks ago. The trade war with China, while it is getting a bit better, that's still obviously going to be, um, you know, a divisive issue. Brexit I mean, we just saw on the, the no deal being taken off the table and general election, stocks actually rallied and then came under pressure off poor news, which hasn't really been the case. I have to say, it was a bit of a shock to see stocks globally really get a push of positive Brexit news, but that's starting to pick up now, become a serious matter to consider. And of course, slower global growth is another issue they will consider versus those who see domestic data largely supporting supporting their outlook for solid growth. I mean, there's a lot of positive numbers still in the US, unemployment and employment numbers pretty good overall in the grand scheme of things. And of course, stocks are on all-time highs, let's not forget as well. So those that are going to be the dissenters, those that believe we shouldn't cut, you're looking at Fed's George and Rosengren, both likely to send— to dissent again So that wouldn't really come as too much of a shock when those numbers come through at 6 PM. So they're likely to descend again tonight if the Fed cuts rates. They will have some company. The Fed's September dot plot of interest rate projections showed 5 officials didn't favor the cut delivered at the meeting and another 5 who saw no need for another cut this year. Since then, there has been, yes, the manufacturing slump. Yes, negative trade talks that have come through, Brexit is still not resolved, and global growth across the world is, is still not great. And that's led to this, uh, another rate cut being priced in. But you're going to have some people in the Fed camp that aren't going to be too happy with that. So I've just, you know, while recently we've seen the dollar weaken, we've seen stocks push higher, gold is still elevated overall. It could be a bit of room for all of those two come under the pressure as well. So this all creates a possibility of a surprise. Economists putting at 20% odds that the FOMC will decide not to cut on Wednesday. So we've gone from 90% at the beginning to a possible 20% no-cut rate change. That for me all brings in the opportunity for a good interest rate decision, touch wood. Obviously, you know, when we're going and delivering live, it will be an interesting one and opportunities to trade from it. About 20% chance there. Any pause would also certainly be opposed by the big man himself, Donald Trump. So expect him to be on the wires post-6 and then 6:30 as well. But yeah, we'll, we'll have to wait and see for that. So just having a look back at the the calendar for, for the day, just to wrap things up before having a quick look over the charts. It's going to be a busy one. You've got the EU numbers, as mentioned, at 10 o'clock. Before that, the German unemployment rate and unemployment change, 8:55. ADP starts off the afternoon with then the Bank of Canada rate decision, German preliminary CPI numbers And then obviously the, the DOE coming in earlier around 2:30, and, and the Fed 6 o'clock, 6:30 press conference. It's going to be a good day, and I'm certainly looking forward to it. Opportunity-wise, are you going to want to get too involved in the dollar beforehand? I guess it's, it's a case of letting the trade come to you. Again, we've already had yesterday's high tested in the euro pretty much to the tick. So you could argue that we're, we're looking quite technical already. Yesterday's afternoon lows, a nice double bottom around 128.63. We're just finding support on a previous high of the day, but I would be also marking up that triple bottom that we had from yesterday, uh, and then the low, uh, on the 25th, uh, as well. So a couple of areas really to keep an eye on, and these would be where I'd more just wait for price to come to for the— for— oh, this is the pound, sorry, for the pound. And then the euro, as of course we broke through, of course, yesterday's high. I'll be marking up that triple bottom from yesterday's low, the low of the morning as well, and a couple of levels in between. But really just wait for price to come before looking to, to get too involved, I reckon. S&P and gold, no harm in, in sitting on the hands ahead of the Fed and start planning for different scenarios. So ahead of any potential shock, you are completely ready. Just like, for example, you know, a returning server in tennis is prepared for, you know, a slice serve, serve out wide, serve to the inside, and they know their reactions already ahead of that. And that's very much what I'd be looking to do today if that was to be the 20% that they keep rates on hold. What am I going to do? What markets am am I going to trade? If it comes in as expected, then what's the opportunity, or is it a case of waiting to 6:30? Uh, oil will run through as we go through the day for the DOE. Uh, just a quick, uh, look at the API candle. You can see from 8:30, very small reaction, usually is the case. And this market contained again by what was strong resistance to now be support. So keeping an eye around 54 $48. The level we're trading now, while chopped up yesterday, is important. Also keeping an eye on any potential retest of this trend line. However, we would have to come through an important area around $56 to get there, uh, as well. Any questions, as usual, guys, to please let us know. Just remember, we're, we're online live on YouTube from half 5, so any questions ahead of the Fed, please do let us know and we can include them, uh, as well. Hope you have a good morning, good afternoon, and I'll catch you all later on.