US Stocks and Oil have worst day of 2019 - more to come?

Hi guys, good morning. Wednesday the 23rd of January. Hope you're all wrapped up nice and warm, especially if you're in the UK with the recent snow that we had yesterday afternoon and overnight. Obviously, if you're abroad living in the hot weather, we're all very jealous. Uh, we'll get started today by just having a quick look over the markets, how we finished yesterday into today's session. Uh, we'll go over the stories from overnight, what's currently driving price, and we'll have a look at the calendar to, to wrap things up today. Yesterday was, you know, relatively speaking, quite quiet in terms of new news that was, was coming out throughout the day to drive price. The only real headline of note into the afternoon was, was some, um, some US home sales data, which was actually quite weak, but not necessarily too much in the way of, of driving market price. We had some UK numbers out in the morning which were actually positive, wage numbers the best we've seen for some time, and employment at an all-time high. And we drifted higher into the back end of the session. The dollar relatively unchanged yesterday, and you can see today just retaking that 130 handle, having slipped a bit lower. over the, the sort of the Asian session this morning. The main mover from yesterday, uh, was, was oil to the downside. Its biggest sort of, uh, move lower in, in quite some time, definitely this year, moving from the, the sort of $54.50 that we saw Monday afternoon down to $52 where we found a bit of support into the back end of the session and subsequently recovered to take $53 handle on on the futures. Um, so reasons for that, and just before we actually come on to that reason, you can see how that impacted the S&P yesterday as well. I remember talking in the room around about sort of 4:30, and it was a very interesting time from a technical point of view. You had this low that we've marked up here on, uh, the sort of the Asian session support once, twice. We broke through to then find resistance later on And then you also had a key area that we found support on Friday as well, and it was a case of a battle between the bears and the bulls, who was going to win. And into sort of 5 o'clock yesterday, 4:30 after the European close, equities did, did come a bit lower. Potential reasons for the market moving lower yesterday— well, on Sunday, the, the Twittersphere was incredibly bearish. Everyone was talking about how this was, you know, going to be a short-term or potentially long-term top in in equities and oil for one as well. And the IMF over the weekend downgraded yet again global growth, this time to, uh, 3.5%. So the second time in 3 months they've downgraded it. If you remember back to October where they downgraded, uh, growth to— well, to then to 3.7. And just having a look at actually equities around that sort of time, if I just remove the pivots and, and clear this up, if we go to October, uh, last year. Let me just get that in picture. So this is sort of the October months here. You can see, um, other than the, the sort of the midterm low where we had a bit of a correction, if you like, to the upside from that sort of pricing in the, the worst case scenario, uh, we have actually, you know, continued to drift lower into the back end of the year and obviously recovered a bit now. So be interesting to see what happens here with this sort of global growth worry, if you like, and how that could impact on equity markets. Also, we had some— or less positive, I should say, rather than negative headlines out of the sort of trade talks between China. So, you know, a bit of a pullback for equities. I, you know, I can see that happening. I think we're— in the case of oil, obviously the global growth was another reason sort of cited for the move lower that we saw yesterday. But the decrease in production that we have sort of seen filter through into the market, I think, will sort of override that. And that might be sort of equity's saving grace from a further move or a bigger move to the downside. Just interestingly worth having a look at oil here as we are starting just to pick up to that downside. And this trend line that I had marked up earlier is actually just breaking now. So $53, and you can see Got a well-respected trend line from yesterday evening's lows, and so worth just keeping one eye on that. And obviously the follow-through that we had yesterday, albeit delayed, was equities then came under pressure and, and pushed lower into the close. So again, you've seen that correlation work out. And just before we move on, I just— I know I've said this probably most times that we've done the briefing— just the importance of that correlation, uh, for me is, is, is massive. If we have a look at the, the all-time highs of, uh, of equities, uh, last year in the S&P. You've got that on the sort of the 2nd and 3rd of October. If we have a look at the low from last year, let's call it the 26th or 24th, uh, of December. Let's switch over now to oil. And yeah, you guessed it, the high 3rd of October and the lows 24th and 26th of December. Same chart, you know, different numbers. So definitely one to bear in mind there. Uh, if oil can lead the way either direction, I think that could be the, the sort of the short-term sort of movement. Obviously there's gonna be reasons why they move opposite directions for sure. Oil, next couple of days you've got the API this evening and then, uh, the Department of Energy tomorrow, obviously being pushed back a day because of the, uh, the bank holiday that we saw on Monday, Martin Luther King Jr. Day. Definitely a correlation to, to watch out for there. Also overnight, uh, we had the Bank of Japan, uh, stimulus unchanged, which was expected by the market. They also cut inflation outlook again. So, uh, the yen weakening yesterday, albeit not, you know, too drastically, as a lot of that was priced in. If we just have a look at the chart from that reaction, you can see— and this is the yen against the dollar— so yen weakness to the downside, which is these red candles highlighted here. Um, but you know, more importantly, I think in terms of moves going forward for the yen off this, it's, it's kind of expected. Um, so I wouldn't be necessarily wanting to, to jump in at market to get short. From an intraday trade perspective, you can see where we have broken through this morning, um, and that with a couple of lows around there, then pivot looks to me like a good resistance point. I've got a tweet this morning about, uh, the yen and shouldn't we— or dollar yen, shouldn't we be higher? In this case, shouldn't we be lower? And I think we, we can drift lower for sure and maybe take out last week's low, but it wouldn't be a case of wanting to get too aggressive on that market. I mentioned the US dollar yesterday was, was quite contained, and with equities coming lower and it's, you know, a bit of a choppy dollar, gold didn't really know what to do. We had actually printed a fresh low for the year in gold yesterday. That $1,300 handle, uh, that we, we reached in, uh, sort of, uh, early January, uh, what a resistance level that, that was. And we had, you know, been in this range only to break out, uh, on the 18th, which of course would have been Friday, uh, to find a bit of support on, on the S1s, uh, on Monday and Tuesday before sort of drifting higher. So be interesting to see what happens here with equities and whether we start to get that risk-on, risk-off correlation come through. But I think with, with what we saw from the mid part, early mid part of last year, the gold is going to be dictated by the, the strength or weakness of the dollar. Again, from a technical point of view, this market looking quite interesting around these highs which have offered very strong resistance over the sort of last couple of sessions. The pound data obviously helped buoy it throughout the sort of the afternoon yesterday. And with, uh, the dollar just coming off a touch over the last 15-30 minutes, worth keeping an eye here as well. On a longer term chart, we sent out that strategy on the Monday. Obviously, if you haven't got that, it's on our website as well. But quite importantly, one of the levels we marked up was this resistance point that had offered, well, previously such a good level of resistance back in November to early December, but then support over the sort of the early part, mid part of January once it had broken through. And again on Monday and Tuesday, you can see just how well that held, and around the 129 handle as well. So key level of support, I think, to want to get short this market, I think you're gonna really want to let the market tell you what's happening rather than, you know, saying, okay, well, look, Brexit is you know, still, uh, you know, massive drama and, and whatnot, I want to get short, I'd really only be interested actually under this level. Of course, if a headline comes out, you know, go with it, and, and that's an opportunity to, to get in. But as long as we keep pushing higher, whether it be slowly or not, I wouldn't want to be getting, uh, short from a resistance point higher up, if that makes sense. Key level 2 to be aware of on Brexit there is— on Brexit, on, uh, on cable would be this potential third test of this trend line. So definitely one to have on, looking back here from the 20th of September into the, uh, the 12th, uh, of October. Elsewhere, overnight data out in New Zealand was a touch stronger, and you can see we had a push through, uh, the pivot, the R1, and to the R2 this morning, which is obviously positive for New Zealand considering last week we had some weaker data in the morning which really set the tone for the remainder of the week. So definitely one to keep an eye on there, um, and how that can follow through. Even with, uh, you know, the Aussie dollar, you had that positive correlation. I wouldn't be too convinced of that really following through, perhaps, you know, to, to get a break of this pivot equities do continue to come under pressure, if oil does as well. So last year I talked about the sort of correlation— actually, someone pointed it out to me, but it was, it was definitely one to, to keep an eye on— is the correlation between the Aussie dollar and US equities. So if equities are to come under pressure, more often than not, as of recent times, it's going to be down to negative trade talks. And of course, that has a negative impact on China, and China Australia. The correlation between the two is quite positive. So if equities were to come under pressure and the trade talks were to stall, as what has been reported overnight a bit, then I wouldn't be too confident of getting long Aussie dollar regardless of data— positive data out of New Zealand and that positive correlation as well. So yeah, the biggest mover, just to sort of Recoup that on, on oil, um, you know, was the, the sort of the $2.50 move to, to the downside. We've sort of rejected that trend line of $53 for now. Um, the, the data calendar, as I mentioned, we, we haven't got the usual DOE, uh, today at half 3, and you've got the API that comes out 9:30. And most likely, and I haven't seen the calendar, but the, the DOE tomorrow will be at 4 PM. I'll put obviously because of that, that Martin Luther King Jr. Day. As was the case yesterday, just having a look at this calendar, it's going to be, um, quite a quiet morning and even afternoon. You've got some retail sales data out of Canada, but it's from November, it's old news. Yes, it's a volatile market of data releases, but we wouldn't necessarily be expecting it to be a driver for the remainder of the afternoon from that. So yeah, I'll be quite careful about looking to get too aggressive, and, and that was really the feel of the market yesterday. There's a couple of, you know, half-decent opportunities. Once, say, the pound had broken a trend line, or gold had found resistance at the pivot, and S&P and oil had broken lower, uh, out of different charting patterns. But it wasn't, uh, a day yesterday to really get, um, get too, too aggressive, uh, at all. Just having a look at other sort of, um, headlines that, that did come out. I've I've always been a fan of looking at this, the global market overview on the FT. And obviously if you have a subscription, I'm sure you're well aware of it and they put it on their Twitter as well. Just to set the tone and that along with the sort of the blog that we send out from Ransport in the morning, I think is a fantastic way just to build up the sentiment to then lit the market then either confirm that or not from a technical point of view. So the way I came in this morning, and obviously I've got it all written down, just having a look here. Stocks lower in Europe and Asia, sort of that follow-through, uh, from Wall Street. Caution persists after Trump rejects China offer for trade talks. So that's something that I'm noting down, it's the second point on here. And again, today I would just be, uh, favoring the downside for equities, to put it like that. So if I switch back to the chart and having a look at the way the S&P is trading. Yes, the pivot, uh, acted as good resistance from, you know, further push higher. So that's an area again that I would mark up, was also the low that we had, 330, before a bigger move, you know, into, into the afternoon. Quite a key level. But I'd mark that almost as, you know, the area between the bears and the bulls. If we can get back above, uh, effectively the high of the day, then into the afternoon volume picks up. Again, UK, well, that, that trade story has been pushed to one side. Also overnight, there was the idea that Thursday could be the start of the, the end of the shutdown. The Democratic-backed legalization to reopen the government, so that's planned for Thursday. Whether that can come through or not, we haven't really seen too much in the way of a negative reaction for equity he's on this record-breaking government shutdown. So whether that could even move the market positively or negatively, I don't— I'm not, not too sure on that. Going back just to the, the global growth situation, the more this, this picks up, the, the more I think we could see a short-term move lower for, for equity markets. And obviously a lot of the, uh, the earnings that are coming out in the US at the moment aren't necessarily the best, but that has been priced in. I, I talked about in the, in the strategy report, well, why have, you know, equities recovered really since Boxing Day? And it's because that bad news that was, you know, definitely around October, November, has kind of disappeared and been replaced with better news. Obviously, the, the trade talks have improved. Brexit has, you know, improved a touch as that no deal has been, you know, pushed away. And, you know, an overnight Parliament were leaning towards the, the extending of Article 50, which is of course positive in the idea that that no deal has been pushed further away. And going back to November, obviously there was the, the negative sort of scenario in Italy, which has sort of almost been forgotten about, the global growth downgrade, which again is now coming prevalent now. So the— we're just looking at this chart here, you've got the, the profit for forecasts have sort of been downgraded again for the earnings per share, down to 6.5%. But interestingly, you know, just a few months ago when it was sort of deemed a lot more positive, we were looking at 10%— the global EPS would grow 10% in 2019. So another downgrade, and this will start to weigh on sentiment. And obviously the, the Trump oh, the China-US trade talks, March 1st deadline. If you're Donald Trump and you've seen— if we go back to the equity markets— if you've seen what positive headlines can do, and that's, you know, admittedly helped by probably a bit of low liquidity, which we have seen plenty of times in markets, you know, gold 2017 December, which have been coming down, had like 16 up days in a row you know, similar sort of situation here, perhaps helped by that. But if you're Trump, you're seeing, okay, positive talks and we push in higher, negative we come lower. I've got a bit of wiggle room now. I've got until the 1st of March. Let's see what, you know, you know, really trying to put down our foot again can do. Because, you know, you, you save it last minute and we can start to go higher again. And that is why I do believe we will see the all-time highs again. There's, you know, plenty of reasons why that's not the case if those trade talks weren't to materialize, if global growth really was to stall, if oil was to, you know, continue perhaps, you know, yesterday was a short-term high and come lower, then absolutely, we, you know, we can look to, you know, not necessarily test last year's low, but, you know, have a good go at it. I was having drinks with someone yesterday who believes, you know, we're gonna have one last push sort of to get to 2750 area, and then it's, you know, gonna be a, you know, a couple of bad days and we'll, we'll look to get back to 2,500. So that's, you know, the markets are just full of different, uh, opinions. Mine is that I think the trade talks will eventually become positive again, uh, and we, and we, we push on. Technically, from a, that sort of point of view, the, the high from December 12th, as noted in the, uh, the weekly strategy report, is key. I think you've also got 2,700 there as well. Interestingly, yesterday the, the trend channel which had offered such good support resistance was tested as support yesterday and held. We failed to close below that. So again, today that would be, uh, be pretty, uh, important, uh, looking for that into the back end of the month. Obviously, with Davos currently ongoing, you've got no representative from, from US there at all, which is a bit of a surprise and and whatnot. But you've got Trump speaking on the 29th, you've got a couple of obviously central bank meetings coming up as well. So we just have a quick look over those as well, just to get the calendar to sort of put that into picture. If you give me one second. So here you can see the, the scheduled meetings for central banks. You've got the Fed, uh, this time next week. You've got the ECB tomorrow and then Bank of England in 2 weeks' time as well. So while the market's perhaps on edge now, I feel you've got some, you know, more important earnings for the market anyway coming out next week. You've got central bank meetings coming up, you've got Trump's speech, you've got potential end of the government shutdown, you've got oil starting to move again, and stocks their worst day or year in US since in 2019. You've got Bank of Japan, uh, dovish. So yeah, the market's starting to, to pick up again, and I think it could be from the back end of this week into next where, uh, more opportunities, uh, come about. So just to finish up on the, on that calendar, again, just to reiterate, I do expect it to be a similar day to yesterday in that the market we'll sort of be on edge a bit. Not too aggressive would be my advice. Let the market tell you what's going on rather than looking to jump on. Dollar is mixed. It's in a bit of a, you know, a sticky range. You've got the, the euro, which it was good to see in the chat yesterday, people talking about how just not too, too sure about the overall direction. I mean, just looking at this on a, on a 240, if I just move this above the camera, I mean It's like a heart rate, isn't it, which is pretty consistent highs and lows. Yes, we're in this bit of a trade channel, and for me, I'd almost wait for, for that to break out before wanting to, to pick a direction. The ECB obviously were relatively dovish in the middle part of last week, and that has weighed on. But as, as talked about a couple of minutes ago, ECB meeting tomorrow, maybe waiting for that and for some clear direction is a better way to go about it. Haven't spoken too much about Brexit, but with that sort of delay expected of Article 50, for me that's why you're seeing pound on, on the highs of the year at the moment. And that continues with no sort of real negative developments. I mean, look, May used another couple of lives up last week. I think we can continue to push higher. Oil and stocks, look out for that correlation, and gold for the sort of the strength or weakness of the dollar. We'll be on obviously throughout the day, and any questions feel free to message in the room as well. But if I don't speak to you, hope you have a very good Wednesday.