What Does Shutting Parliament Mean For GBP?

OK, very good morning to everyone. Hope you're well. Thursday, 29th of August. Going to, of course, review what happened last night. Seemingly, whenever I'm off the desk, it's when all the fun stuff happens. Some things never change. But obviously the fairly sizable move in the pound yesterday, and it's kind of moving to the downside again this morning. Uh, still got another, I'd say, what, 25, 30 pips or so till we get to the extremity of the low point from yesterday. But we can have a little bit of a catch-up of what exactly happened and what are the thoughts going forward. And then one of the other big talking points from a news perspective is that in regards to Italy We've seen Italian 10-year yields move to record lows. We'll look at the reasons why and what my thoughts are on that going forward. I'm not going to dwell too much on the charts. I'll leave that to Sam. But to give you an overall flavor of just general market sentiment at the open, I wouldn't say it's overtly one way or the other. If anything, mild risk-off. Equity index futures, US and Europe, marginally lower. However, the S&P has kind of been clawing back any late losses that were seen towards the early part of the Asian session. But the 10-year, touch higher, up 7 ticks. Gold up $7 at the moment. The Dixie is trading up just shy of 1/10, so a little bit of downside pressure as Cable worth keeping an eye on for the aforementioned reasons about the latest news from yesterday. So let's get straight into it. What are we looking at? And this is the kind of latest response behind the surprising move from Boris Johnson yesterday to suspend Parliament. Now, the overall thinking here being a push to basically give MPs lesser time to block his his kind of pursuit of the threat being credible of having a no-deal Brexit on October 31st. Now, a couple points to cover here. In theory, suspending Parliament is a fairly normal event. However, the timing is of course particularly suspect given this very short timeline we've got until what could be a very severe economic situation if we have a No Deal, no transition, disorderly Brexit. So prorogation, as it's called, the shutting of a kind of parliamentary session or term, which is then kind of bookmarked and by the Queen giving her, her go-ahead. Now the Queen doesn't really have much of a say in this process. It is really purely symbolic. And what would normally happen, and it has done for the last 100 years in our history, is that she goes off the, um, the advice of the Prime Minister of what should happen. The fact that Boris Johnson has gone to her and requested this is essentially then she just gives it the rubber stamp. Very rare, if ever, has happened. As I said, it's been basically a non-event for the last 100 years. Shows how unprecedented this Brexit situation is that the Queen would ever consider getting involved on this kind of political level. So not unsurprising that the Queen has backed that. Then what does this mean going forward? Um, again, the timing is key. What's again more controversial, of course, is the length of time involved, because we're talking about a 5-week process, which means that MPs return from recess next Tuesday. So let me just flash over to a different graphic. MPs return from recess next Tuesday. And they will only sit for around a week before then Parliament closes down again until mid-October. So this graphic, and it's slightly chopped on the right-hand side here, so let me just see if I can shrink it. There you go. So you've got Parliament in session on this timeline, chronological from left to right, going from now to the future. Parliament in session is in orange, so they come back in a few days' time. They then would technically break up and Parliament is suspended, only then to come back for recess or from the recess and just in time for the Queen's Speech again. So as much as the Queen is the figure to end that session, she then gives a speech to reopen the new legislation under the government, which is what Boris wants. This then gives a very short turnaround into the European Council meeting. Boris's strategy I think, as we'll discuss, I think is still to secure a deal. But I also think that that obviously needs to come with an extension and then a general election. So I don't think that— and the reason why the pound isn't through the floor, that this is just right, the odds are on now for a no deal. I'd say they've gone up, but I still don't think that that is the— at least still at this point, the end outcome of the situation, and we'll discuss why in a second. The other thing is, um, what would normally happen is Parliament is suspended anyway in late September, early October. Why does that happen? That's because every year you have the Labour Party conference at the end of September, and you have the Conservative one that follows a few days after. So actually, technically speaking, although he's pushed this It only adds, I think, technically 3 more days to what otherwise would have been a suspension for the, for the party conferences period anyway. But obviously it's being dressed up and a lot in the press. And what or who is going to be a very influential figure on this, because he can use and adopt his discretion, is the House Speaker Bercow, of course, of which has been an ardent a kind of backer of having Parliament have its say, very much remain-minded. I think he was quoted yesterday as saying it's a constitutional outrage and so on. So I'm sure there's going to be a lot more twists in this story before we get to the end point. Now, the main implication of what's happened basically in the last 24 hours is it will make the legislative path to blocking a no-deal Brexit more difficult. But importantly, not impossible. So very important, that last point. If those legislative attempts fail, opposition MPs are left with little choice but to back a motion of no confidence if they want to stop a no-deal Brexit. Now what that means— oh, hang about, just got some new comments just come down the newswires. China's Commerce Ministry asked about trade dispute with the US. Says both trade teams have been in touch. That's just come out, stocks rallying. So I'm just— let me just put my Brexit discussion on ice for a moment. Immediate upside just going through the equity space. S&P just powering through the late Wall Street highs. Bund and T-note futures backing off. Gold seeing some downside. So just to repeat, the Chinese Commerce Ministry has just come out. US are in effective contact. China will not crack down on foreign companies, but China thinks should discuss removing the new tariffs. So remember, we've had a complete, almost catastrophic breakdown given the Trump flip-flop we had at the last week. We have had overnight— let me just quickly jump over to this— you've had Mnuchin says China trade meeting will happen but won't say when. But now a very positive update coming out of China, who looked like they were being much more aggressive. So you can see the reaction and sensitivity in markets to this headline. Stocks just motoring on the back of that last piece of news. Currency markets the least reactive. Yields, gold, stocks definitely buying into that headline. So typically this is what you see with a fast money move in, in markets. The speculators jump in. You can see in the center— if I go back to the, uh, the charts here— you can see here in the center chart NASDAQ, and to the right of that the S&P 500 futures. Immediately then, markets typically use these daily pivot levels as very near-term and clear targets to run the price to in the kind of momentum-based trade. in the initial reaction. And then you can see quite substantial pullbacks then set in as people just bail on that trade, looking to book profit and maximize on that short-term volatility. But definitely an interesting development there, and obviously just fresh off the press, just coming right now. But quickly jumping back to Brexit, obviously things are in flux, so I'll try to keep this as brief, concise as possible. Possible. It's going back to this chart. As I said then, if legislative attempts fail, which timing is at essence, and you would say potentially they're running out of time, then opposition MPs are left with little choice but to back a motion of no confidence if they want to stop a no-deal Brexit. Now this obviously starts to lead down the route of a potential then general election. Now I, I read an absolutely fantastic comment that I think really summarizes what I feel is Boris Johnson's strategy here from the chaps at ING who made this graphic. They said an election that is forced upon the government, of which in this case, as we're discussing, would be, and coupled with a further Brexit delay, because to hold a general election would require more time to basically set up the process, so you'd have to delay Brexit would allow Boris Johnson to campaign on a tough Brexit stance without risking the economic impact of a pre-election no deal. This would be then, I think, Boris Johnson's move that he's done. The more I think about it, the more I think it's a stroke of genius, because actually what it means is that you're allowing less time. Yes, what is going to happen is you're going to have constitutional um, kind of pushes where the legal courts will try to come in. This has already happened yesterday. Gina Miller and others have tried to table an urgent injunction over Boris's ability to be able to do what he's done. The point being is though, it's almost unheard of in the history of Britain for the, for the Queen to come back, for Boris to, to, to, to go, actually, I was wrong, we're gonna I'm going to go back to see the Queen, I'm going to reopen Parliament. That's not going to happen. So the point being, these legal challenges I think are fairly hopeless. So if we go down this option of what's going to happen is a vote of no confidence leading to a general election, just imagine the amount of support Boris Johnson will have by people who want the delivery of Brexit. He now has been blocked by Parliament the Ramonas, if you like, if you're of that political stance. He's failed to deliver, and what he's been pursuing is the democratic will of the people, blocked by Parliament. This is only going to fire up even more sentiment to back him. And he averts then the worst economic situation of not having a no deal. He gets a big majority in Parliament then on a new election. He then goes to Brussels and then secures a deal. And actually, there you go, there's no, no deal. I still don't, I still don't think that's going to happen. He then gets a deal over the line, which I still think is the best outcome for what the government, even under Boris Johnson, wants. He doesn't want to be in the premiership seat given a dramatic economic recession that we would head into. So also not forgetting, I think to further support this argument of what I believe is going to play out, is the fact that Boris Johnson, remember, only a few days ago said, "There's no way I would speak to Europe without them. I would never even have a conversation with Europe without them dropping the terms on the backstop." And there he was at the G7. Rubbing palms, smiling, joking, and so on. So I definitely think that there's more, um, strategy behind perhaps what looks like an impulsive move, perhaps to be interpreted that way. I definitely think that this is actually quite a bold but quite a savvy one that he's made. The one thing that this does mean if you're trading the pound— this is a picture of the pound-dollar 3-month implied volatility And we're looking at levels that we haven't seen since the peak of really, uh, Q4 of 2018. And so the point being is you're going to see much more, uh, possible violent swings in the pound coming. Now obviously the downside level, we've seen a pretty decent bounce in recent weeks off that 1.20 lower bound. We're about 2 points above there at the moment, but for sure I would say between now and October 31st. And this is the timeline you need to be aware of, so do check that out. I did share it on our Amplify Twitter account. Um, there's going to be loads more headlines to digest because even though I've talked about the end game of how I think this will play out, um, and if we did get that extension and the general election, if anything, I think there's going to be periods of relief followed by stress and panic before that even happens, because the increased risk has to be priced in for no deal. So you're going to see big swings in price action. Importantly, no one's going to be really wanting to sit in any type of medium-long-term position. So the people trading the market will be the speculators and momentum chasers following these spikes in price movement, which almost exacerbates it. So definitely you need to be quite agile and flexible to trade that product if you're going to be looking at it. All right, enough of Brexit, let's move on. The other thing I wanted to talk about was Italy, because the Italian opposition PD and Five Stars say they want to form a coalition led by Conte. Now, uh, Tommaso Amplifies— Tommaso, which you know well, um, he wrote an excellent summary of what has been happening in Italy, and I'll read it out to you. He said the reshuffle will avoid an early call to the ballot boxes in October, remove concerns over the 2020 EU budget submission, and avoid the increase of the VAT in September. Moreover, the exclusion of the widely announced flat tax from Salvini and a citizenship income from the Five Star as part of the previous government mandate releases investors by their worries on the costly implications of these measures on the Italian fiscal budget. Net-net, Europe happy again. And so what has happened here is this: the Italian 10-year bond yield has hit a record low. Now, you remember I was sharing you graphics about this quite monumental rise, the spread widening between the BTP-Bund spread as Italian yields were rocketing, given the uncertainty that was triggered a few weeks ago by the breakup of the existing coalition when Salvini pulled the trigger on that kind of collaboration, if you like. And that brought about the risk of new elections, the risk of the League getting into power, and so on. That now has dissipated fantastically, and so yields have dropped dramatically, and Let me just bring into shot here what that looks like on a chart, and I'm going to show you the BTP future. So we're looking at the yield. This is the price. As you can see here, quite— it's been quite a technical product to trade, actually. You've had that area of really a double top which has defined some of the price action of July and the early part of August. You then came back for a nice little test here as— sorry, let me just remove this. That box there. Nice test for coming back as what was resistance to then support, um, on the 22nd, so only about a week ago. Before then, a real breakout on the upside as things have got more positive towards— and again, resistance support on the pullback, and then a really aggressive push higher. But check out BTPs on the long term. This is the weekly. Now that we've rallied very aggressively and the yields have fallen to these record levels I would say we've come into a fairly significant obstacle on the upside. Just looking at BTPs here, uh, this is a weekly continuation chart. You can see this is the high of 2016. We've pretty much come bang up there to the tick. So I'd say for now, um, that is the, the limitation of that move as I see it for the moment. So if you had a part— if you got hold of it over the last couple of days, particularly yesterday, was exceptionally large move, then well done. I think now you've kind of seen the endgame for that. One thing actually that I did tweet, and just to give you what my end assessment is of what this means going forward, was this. If I quickly switch over, personally I think this Italian bond yield move we've had in recent days is overdone. My reasoning Being, I think, a 5-star PD combination still isn't yet a complete done deal. They still need to appoint the various different people. If Conte, who's more favorable and leaning towards the 5-star, that would mean you need to have a deputy from the PD, of which no one yet has been announced, as well as other senior appointments. So there's still lots to be done. But underpinning everything, even if they can get— and obviously the move that's happened in Italian assets is, if anything, I'd classify as a relief that the worst case under Salvini has not materialized. The problem I have is the Five Star and the PD— I mean, the only thing in common that they have as political parties and agendas is the fact that they hate the League. That is no basis to form a coherent, long-lasting, and effective relationship, in my opinion. So now that this relief has happened. I ultimately do think that even if they do come together and able to form a relationship of some substance, I do think that it's a fractious relationship that will come undone in time, and we will arrive in due course back at where we are right now with Italy. And I do not think that that relationship will last particularly long, whether 1 year, whether 2 years. It's a stop clock, I would to say, in my opinion. All right, other than that, I'm actually gonna just wrap up the calendar and then hand you to Sam because we've talked for long enough. We've had a couple of the German state CPIs coming out this morning. Saxony's already been released about half an hour ago. The month-to-month minus 0.2%, previous was plus 0.4%. Year-on-year decreases by 0.2% to 1.4%, so a bit of a pullback there. I'd say unsurprisingly though, in the first German state CPI, we'll get the others to follow. Otherwise, for the morning, what else have we got? It's pretty quiet. Again, the biggest development actually from a news perspective this morning is the Chinese comment, and it's a positive tone that's been struck. Otherwise, it looked like almost China washed their hands with doing any dealing with Trump, but seemingly they're looking to come back to the table, and that's being translated into positive stocks, unwinding of that risk premium, pullback in T-notes and gold. For the rest of the session, uh, focusing predominantly on the US, you've got the second reading of US GDP, looking for it to be relatively unaltered, uh, a 2% print against the advanced reading of 2.1%. That will of course come alongside things like, uh, core PCE prices. You also get the advanced goods trade balance in number and the weekly jobless claims. And then that's about it for the moment. So given what China has said, I do think a new element to add to your calendar and your awareness to any trades is you've got to wait till Donald Trump wakes up. What does he say? And I think personally he's going to come back and say something fairly, fairly conciliatory, let's say, towards he'll like these comments from China. He'll say, yep, let's get a deal done, because he wants to just reinstill a little bit of positivity back into the market. So look out for those Trump tweets. Of course, he tends to have a pattern of waking up and tweeting from a London time, from around 11. I'd say about 11 AM, you should really start being prudent for any tweets that he does. But typically, they come around 11:30, 11:40, the first first ones. But given the context, he definitely will be saying something on trade in a couple of hours' time. All right, hand you over to Sam, and I wish you a good day. Thanks very much, guys.

Hi guys, good morning. Yeah, let's have a quick look at equities. Those comments obviously helping pushing price higher there across the board, not just in uh, the US, but Europe as well. As always, always worth keeping just, uh, an ear to the ground on the reversal of, of these comments, the denial from the other side. And we are just seeing a bit of a pullback. I guess if you were looking for this continuation in certainly US equities, you've got to take that 2,900 where we're trading now, the, the high that we had back on, uh, the 26th 7th, which would be Tuesday. Just a pretty key area in general, uh, so definitely worth keeping a close watch on here. And you can also see from this morning, and you know, the, the break above this trend as well, that's along with the previous high of the mornings, is another area you keep an eye on. So a couple of key points just below where we're trading, most notably now yesterday's high. Let me just make this a bit bigger for you. And obviously the trend line and of the day break, which came on that story, uh, that just came through while Anthony Cheung was running through that briefing. Above where we're trading, obviously we had a big spike to that high of the day, and you can see, uh, you know, the really key resistance zone. And to me, what is stopping any push to all-time high— we have to get above this area here. Those highs that we had back on from the 8th, the 13th, and then obviously struggling to get there, uh, the back end of last week before Friday's Trump meltdown that we saw. So key level now, but obviously for the main part of the week it really has to get above there. And, and just to go over again, uh, the— let's just clear this up, uh, the, the image of, of how we're trading now. You can just see how similar, albeit squeezed down, this price action is compared to the one that we had October, November, December last time. So certainly medium-term trade-wise, obviously keeping an eye on that top end of that range, and I do like the idea of a long above there. However, I just don't think that's going to materialize as of, as of yet. Quick look over in the currency space. As Anthony said, no real reaction from there. The euro yesterday really starting to break— well, it did start to break break that mini range of the low yesterday, and it's— that works as a good resistance. Obviously a very small range that we're now in, but definitely worth having on. 1.11 pretty much to the tick is your top end now, and yesterday's lows coming in at 1.1090. So small range there in the euro. Keep a watch on, on what happens at both those extremities. A break of that, you know, well considering how small that range has been. Whether you could get a big push down to the low that we had on the 23rd or not will remain to be seen. But, you know, we're worth, uh, worth seeing what happens there. Trendline-wise, you can see yesterday we, we did have one, but not as well respected. So I had this on earlier in the day yesterday. I mean, actually, I'd still have it. I'd still have it. Failure to really close above there maybe is a bit of a guide. But you can see today anyway, the 111 handle on the futures just above the pivot remains pretty key, as does obviously yesterday's higher point as well, which came on the pivot. With the pound, with headlines yesterday, it's starting to get into that, that moment where, uh, you know, we've— where the pound not necessarily comes untradeable, but you just really need to be careful. Just in the last week. Obviously got those Merkel comments, you've got the Parliament suspend— oh yeah, I'm not even gonna attempt to say that word, prorogation, what Anthony just said. And you can see we came lower. So you've got to be careful certainly trading the pound for now. So yesterday's lows, as I said, not too far away from where we're trading. Well, if I guess, you know, whenever there's couple of lows in the mix, starting to, to get trend lines on, or potential trend lines on, shall we say. So that low that we had back on the 20th to yesterday's low, that could be a potential point just to consider. If you get a bit of support on that trend line, well, later on in the day or week, the opportunity to get short on the break of that is, is always not a, not a bad idea. As you can see, probably worth having on a trend for from the last couple of highs as well, certainly on the 30-minute chart, waiting for a break either way should it be respected. Gold and T-notes came down off those headlines, uh, understandably. So worth again to sort of keeping a close eye on where those lines in the sand may be. And with gold, you can see as well, similar to those other markets, just starting to trend— or this morning it's just starting to be trending higher. So worth having that trend line on, and ideally a break of that is a break of the— certainly the intraday trend, uh, shall we say. So that's something I would have marked up. And as we get higher— as I say, we get lower below there, you can see a really well-respected trend from this week so far. We've got those 3 tests already, so we know the market is looking at that. And maybe even by the time it comes to it, in line with the low of the day at the moment, or even the pivot. So certainly one to have an eye on going forward there. Above the, the level we're trading, you can see the high was that point we've talked about from the, the 26th Asian session. And if it was to get above there cleanly, well, you get the, that high that we had from last week as well. Silver, we talked about yesterday, uh, keep as it is, keep on pushing on and on and As I mentioned, a couple of my friends are in this trade and they're very happy to see we— or they, I should say— reached one of their targets, which was that high that we had back from January 2018. Bit of resistance down there before breaking through again today. It's on— really is on a tear. And you can see this move really starting once we have broken out this, this pattern here. A really good opportunity back on the 23rd, and it has not not looked back since. Uh, have a quick look over at, uh, oil here just to finish things up. We can still see this line may well have been on from, uh, yesterday. Certainly an important one today. You could argue it's a bit more of a zone around that S1 at 5527, yesterday's low, the high that we had back on the 26th as well, and a bit of a lower point from yesterday. Really key, uh, zone if like, of support below there, then sure, it can start to drift down. To the upside, pivot 56, some nice price action as resistance there last night as well. You've got that mini range, if you like. So about 56, for, you know, really, you'd be looking for a push maybe to the upside if it can get strongly above 56.20. And if it goes below S1, then I'll be looking for a drift lower to towards 54.83 and then the S2 as the next sort of target. So some interesting points in oil also. I guess going into this morning, it would just be a case of whether we can get a continuation of this move at 2900. As you see, the first real level of support below has acted well and we've had, what's that, 4 and a bit point bounce from there. So decent enough. So far. Obviously, just be careful of the opposite comments coming through, uh, you know, in, uh, in this market. Any questions, as usual, obviously, please, uh, please do let us know. Obviously, we'll be on the mic throughout the day, but I hope you'll have a good session ahead.