What to expect from the Tory ballot & debate

Okay, so very good morning, hope everyone is well. Tuesday, 18th of June, uh, gonna run through a couple of the major news items from this morning, and then as per usual, hand you over to Sam and he'll look at the charts from a much more technical perspective. But possible that today I could be, uh, on for a very or very short period of time. Just, there's not too much to really— there's moving markets at the moment, not with the fact that everyone's really waiting for this big FOMC announcement to come tomorrow night, which we'll be covering live via our YouTube channel. So do subscribe to the channel, turn on the notifications for catching that session. But overall though, given the magnitude of that, magnitude of that event, if I think back only about 6 or 7 weeks ago is a pretty much a— not so much a non-event, but certainly wasn't one of the most important ones because we weren't anticipating any real likelihood of substantial changes. But obviously that's radically changed, and now Wednesday night really is quite a big situation and decision that the Fed need to make, and how far do they come to meet market expectations. I was looking out on the next 12 months, and we're now pricing in almost 4 rate cuts over a year period. So that including 3 for this year, which is quite incredible really when you, when you think about where we were just 2 months ago. So with that in mind, I think that does need to be applied to your approach to today's session, possibly tomorrow morning as well. It will probably start to saturate kind of market attention to the point where people are just sitting on their hands waiting on the sidelines. for the Fed to show what they're going to do. In particular, I was looking yesterday, there's about a 20% chance of an interest rate cut. I would say most big institutions are not expecting that to happen. However, I did read last night PIMCO are looking for 50 basis point cut tomorrow. That would be punchy, to say the least. Um, one of the things that they're saying is the Fed want to kind of get ahead of the curve, you know, show a strong signal to the market that they're willing to act. I would say that the general consensus though is probably the opposite of that. Take someone like Goldman's chief economist, Jan Hatzius. He expects no rate cut at all in 2019. So that's pretty much your spread, if you like. You've got PIMCO on one side and Goldman's taking the other. But I think From my point of view, you know, the central bank's normal communication method is to— they want to manage market expectations in a way that certainly don't want to shock them. If the market is expecting rate cuts, I do think that the Fed, although will not pre-commit, will give a pretty clear hint towards a cut in July. I think then though they'd want to keep the kind of optionality about further subsequent cuts depending on incoming data. So this data dependency— does the inflation situation continue to deteriorate alongside other domestic data? And then how does the trade war play out will dictate whether or not they will go for the second and the third, is how I'm kind of viewing things at this point. So yeah, definitely not thinking that the dot plot for 2019 is going to show directly 3 rate cuts for this year. I think they'll use the form of verbal communication in the press conference, potentially in the statement, to signify the fact that they remain open to that as a potential route but not committing to it so definitively as dots on the matrix, so to speak. So as I said, net-net, as far as today is concerned, and I think it will carry through into tomorrow, you've just got to be a little bit, I guess, aware of the fact that markets are probably likely to be potentially a little bit range-bound, a lack of commitment or follow-through into real directional play until we get into the second half of the week. So I guess a little bit of discipline is of the order because the best opportunities likely might come the second part of the week overall. Um, quick look across the board then, pretty mixed Asia session, I think really too spectacular to talk about. Just having a look at the charts at the morning, the DAX just coming down towards I can see here Sam would have had marked up the lower bound of some of the end of last week's price action. So maybe worth just keeping an eye on that 12,050 level, um, in the DAX. Otherwise, US indices, as I said, pretty range-bound. WTI crude coming back down to test, it looks like, the low of yesterday's session that we saw yesterday evening US hours. So just keep an eye around there, around 51.80. Treasury is pretty flat. Gold minor positive comes amid a slightly softer dollar. Dixie down about 0.14%, and that's helping elevate slightly the major currency pairs. You can see here EURUSD coming into some near-term resistance around this R1, which coincides with the high point from yesterday's range. Cable, I guess, a little bit of a pullback from the depressed move yesterday. I think it was, was it a month multi-month low. This market's still kind of bedding in this prospect of a Boris Johnson-led Conservative Party. Moving on though to the headlines, I'll let Sam go over the charts in more detail. This is a couple of things just to cover off. One is obviously we're coming close towards the expiration of the existing OPEC+ supply pact that's been in play and rolled over for some time. Where we're at at this situation at the moment is about fixing a date as towards when they were going to meet, because this did get delayed. It was originally penciled in for June. It was then— likes of Saudi and some of the other major producers have talked about doing it in early July, and now Iran has said that they can't actually physically make that meeting. They prefer more— I think it was the 12th, 13th, basically the second week of July. And so at this point, it's still a We haven't got yet a definitive date, but this obviously is important because the more this drags out, then the closer we get to potentially in the lapse of that deal, and that would be worst-case scenario for prices. Um, but it's highly unlikely I'd say that would happen, just given the state of play with oil seeing a pretty aggressive pullback over the course of the last few weeks as the demand side of the situation you know, has, has weighed on prices, outweighing some of the supply shock risks that we had last week in the, in the Strait of Hormuz. On that point, a few things to be aware of. Trump yesterday— I don't think this is again particularly shocking. This shouldn't, I don't think, create an idea in your mind that you'd want to get long oil, but it's certainly something which could, I think, if anything, it would depress oil because it would tame the situation of the Iranian Revolutionary Guard's ability to perform any further stunts like they did last week. This is because the US is sending up to, I think it was 1,500— the FT reporting here 1,000 troops to the Middle East amid Iran tensions just to provide further air, naval, and ground-based threats to repel those with additional deployment of military forces. On that front, there was a graphic that I, I did tweet last week that was quite useful by Platts Oil. And one thing here on the top left, you can see the— basically, I just wanted to represent the, the actual area in a bit more detail. You can see there the site of Thursday's alleged tanker attacks. So that's the red spot here in the Gulf of Oman, which is kind of close to the tip of Oman, southern part of Iran. but you can see there the narrow nature of the geography around the Straits of Hormuz, the inbound and outbound channels. There's actually only 2 shipping lanes and that's it in what is— you know, it's hard to see in that graphic, it looks pretty tight, but it's 21 miles wide at its narrowest point, which sounds quite wide when you think about 21 miles, but in reality when you think about the size of these ships and the type of area that's a requirement for them to pass without any issues, then it is, you know, particularly narrow. One thing here to be aware of then, given that nature of the narrowness of the channel and the slow-moving nature of the traffic that then as a byproduct of that has to travel, it's very much susceptible to attacks. And as you can see, that could be either onshore attacks or hostile vessels looking to attack the, the tankers as they pass through. Now, a couple things here I just wanted to be— make you aware of in terms of the forms of which attacks could happen. There are several options that the Iranians have at their disposal. They could target enemy shipping including mines, coastal missile batteries, submarines, Navy vessels, small fleets of small and fast highly maneuverable boats, as we saw some of the footage of what happened last week. Now, back in— well, I guess this was going about 20 years ago when there was a lot of tension in this area, a lot of this was done by shore-based missiles and speedboat attacks. What's happening here then is really two things. By sending more troops on behalf of the US, you know, they have such superiority in that, you know, their— the size of their fleet. I think it's the 5th Naval Fleet that's, that's moved there. They would be able to repel pretty much every single form of attack and would be able to restrict any type of issue in the, in that particular region. So all in all, the analysis proves that the net result here is that it is highly unlikely, um, that the country Iran could block the strait to shipping for more than just a few days or a couple of weeks. And the main point is, if they even contemplated in doing so, the military response and the interpretation the Americans and Allies would take from that would be, you know, so extreme that Iran wouldn't pull the trigger in the first place anyway. So I think the realization of that was quite evident last week. I know Sam covered this at the time, but it does go some way to explain why, despite the initial headline flurry and 4% price appreciation we had, the move was unable to be sustained. And certainly now, I think, with the US moving in the troops, it means it's even more unlikely, I think, that you're going to see any further confrontation in that area. Quick look though back at the DAX. I did just see as I was talking there, we just popped through that level. I mean, you can see how, just how volatile the DAX is. I mean, just to be clear here, there is no fundamental catalyst that just caused that break over the course of the last few minutes while we were just speaking there. This is absolute 101 DAX action. You can see here the range that we've been holding pretty much for the last 8 days, just breaking through. You got these ellipses here marked at the bottom end of that range, snap through, fast money price movement. Typically then, uh, these speculative traders will look for the first, you know, exit. And that normally, when the markets are moving in high velocity, looking at the pivot levels most obvious So you can see how that S2 there working is a pretty good target on the downside. Uh, so yeah, just saw that more of a technical breach there in the DAX. The other thing of course that we're looking out for today, it is round 2 for these gentlemen. These are the running candidates for Tory leadership. They're facing their second ballot vote. So let me just refresh your memory of what the plan is here. We've had the first round, uh, where Conservative MPs vote, uh, and candidates receiving fewer than 17 votes are eliminated. Remember, that did see some fall by the wayside. The one who only just by a whisker cut the, uh, made the cut was Rory Stewart. At the time he had 19. However, he's, he seems to have caught quite a lot of the attention given his alternate angle comparative to the other candidates and how he would deal with things going forward. So that could be quite an interesting one to watch. And the second vote, the main point here is candidates receiving fewer than 33 votes are eliminated, is what we're looking out for. Timings-wise, this is going to happen at 6 PM London time when we get the results. That's not going to happen until 6 o'clock this evening, and then at 8 to 9 PM the remaining candidates will appear in a live televised debate on BBC, and Boris Johnson will be taking part this time, as far as it has been communicated at the moment. So obviously subject to change, but definitely going to be quite interesting if Boris does appear. Um, obviously quite a few of the, the candidates have been tweeting or commenting yesterday at the kind of press gatherings in regards to what Trump has been saying on his criticism of the London mayor, for one. Um, Jeremy Hunt actually coming out and supporting Trump on the issue, um, in regards to knife crime and so on. But it'll be very interesting, of course, to see how Boris would respond to such ideas about his relationship with Donald Trump, for sure. So that's going to be one of interest. Um, could the pound move on that live televised debate? Actually, I think it could, and I wouldn't have that as my baseline scenario. I would say more likely or not, the televised debate will go through and the pound will remain unmoved. But if Boris Johnson does appear, let's say he says something spectacularly offensive to the point of even more offensive than Donald Trump's best work. Then that would severely harm, I would think, then his prospects of him being an outright front-runner. And it would throw into disarray then this whole, you know, Boris has got this, you know, this, this position sealed. And so that certainly could be very interesting if that was to occur. Remember, I'd say if Boris was to go, let's say, fall down the pecking order, I'd probably see that as in the short term sterling positive, because other than Dominic Raab, which I don't see making the cut today, quite frankly, um, I'd say, you know, if Rory Stewart, if it swings in his favor, that's got to be sterling positive. To a lesser degree, Jeremy Hunt, because he has been— he's the second in the running at the moment, and that being because he has talked about an openness potentially for an extension and so on. One interesting point I picked up in the UK press this morning is that apparently, according to sources, Boris Johnson has been secretly— his team suggesting they could lend Hunt some of his votes in order for Johnson not to go against Gove. Uh, quite interesting there because Gove, um, typically seen as the more harsher challenge for Boris in that sense, and particularly in the live debating arena. So yeah, that's enough on, on that situation for now. Other things to be aware of: a touch of Aussie weakness overnight. The RBA released their minutes. Remember, they cut rates more recently. They've said further rate cut more likely than not in the period ahead. The other headlines we've had are China's US Treasury holdings sink to lowest level in 2 years. As you can see, Treasury market hasn't blinked, and rightly so. I'm bringing this headline so you're aware of it. The reality is it's not important because this is a consistent pattern that's been happening for a fairly long period of time. Although the, the newswires will make a mountain out of a molehill saying that this is real, the reaction effect that China were doing to counteract an escalating trade war. This has been going on for a long time, so unless they radically alter the speed of purchases, then this really is just a continuation of a trend, all things being equal. The other consideration today, before I look at the calendar, from a speaker's point of view, it starts to spice up a little bit at the ECB forum in Centro-Portugal. This typically has been a platform for heads of central banks to communicate their latest policy stances outside of their regular meetings. So I was just looking at the agenda for Tuesday, and here it is. The main thing you're looking out for today is the policy panel happening at 3 PM. So in addition to your written calendar of economic data 3 PM, you have a panel including Mark Carney of the Bank of England, Mario Draghi of the ECB, and Stanley Fischer, the former vice chair of the Board of Governors at the Federal Reserve. In particular, Draghi, I think, needs to be watched. Probably to a slightly lesser extent, Mark Carney, because somewhat his hands are tied, and unlikely he's going to say too much ahead of the official Bank of England meeting on Thursday. But definitely Draghi would want to be wanting to hear from. Any further clarity about his assessment of current economic conditions and policy responses, uh, how dovish does he want to sound, is going to be quite key. And I think something to consider if you're trading European assets for sure. In terms of the calendar for the rest of the day though, other than that, you do have eurozone CPI, but that is final reading, so I wouldn't be expecting any any great movement on the back of that. You do have German ZEW economic sentiment though at 10 o'clock, could be fairly interesting. Again, I wouldn't say though particularly market moving, it, it normally is second fiddle to German IFO, uh, this being ZEW, The Economist's kind of forward-looking soft data. Into the afternoon you have the housing starts, building permits coming out the US. you get the Tory, uh, leadership second ballot results, uh, tentatively scheduled for 6 o'clock as far as BBC is concerned when I've checked this this morning. That debate happening at 8 to 9 PM on the BBC. All inventories and the APIs this evening. And as I said, a couple of speakers to have a look out for. Uh, the calendar here has Draghi potentially an opening comment at the ECB forum to kick off the day coming up, uh, later on at 9 AM. But the main panel discussions happening at 3 o'clock this afternoon. Okay, with that being said, let me hand you over to Sam. You can look over some of the charts because I can see equity futures under just a touch of pressure. So with that, I'll catch you in the chat room, wish you a good day. Thanks, guys.

Hi guys, hope everyone It's doing well. Yeah, you can just see across the middle of the screen here, the DAX leading the way as stocks in the US also falling. Let's have a quick look over S&P just to begin with. It's just touching the S1 for the day. Trendline starting on the low that we had back on the 12th, broke through overnight, and I think really since then you've had a bit of a continuation to the downside. You see how well that was respected, uh, from, uh, from the beginning of the day on the, on the 13th, I should say, sorry, rather than the 12th. But we have broken through, and since then it has drifted lower. To the upside, you can see that breakdown from the previous low of today, 2895.75, is obviously a key level, uh, S1 really, where we're trading now, along with what was a previous high of the— well, an area of resistance, should we say, on the 14th. That's actually a support now, uh, as a pretty key point. If we were to, uh, to push through that, S1 really would be the next, uh, level or key level to, to, uh, to have monitored on, on the charts. You can just see, looking at the previous lows, all from, uh, the 13th and then the 14th throughout the morning and afternoon, pretty big zone um, to have marked up on the chart. To the upside, you can see if this trend line was to get, uh, retested, we'd be looking, uh, around really 2,900, which has offered a pretty good resistance over the, uh, the last few trading sessions. We have chopped through it a touch, but it is also the high of the day to the tick, uh, today. So another point I would have marked up on the chart, you can see near that, that that high, uh, 2895.75 key, really the low of the day, uh, important now. And of course any previous lows that we have broken through, uh, to the upside, uh, to offer possibly some resistance. We'll keep an eye obviously on the, the DAX and other equity markets. So they're just having a bit of a breather. The pound yesterday, uh, new lows for— well, certainly for few weeks other than that flash crash low that we had back on the 3rd of Jan. Nice break here of this trend line. I didn't really get the retest, but straight breakthrough, and really have drifted lower since then. Obviously, to the upside, we'll be having a look at the previous lows or any of the highs of the day as a point to get in as a resistance for a drift lower. Sentiment definitely definitely favors this market to the downside. You can see just again looking longer term just how low we, we are. And actually, we are now obviously quite consistently here on this, uh, this daily chart combining all the futures contracts. We are now below, uh, that, uh, that point. And really we're trading at levels not seen since the beginning of 2017. So pound under significant pressure still. Sentiment, uh, not improving as of late. Having a look at the euro, obviously the double bottom that we've had at the beginning— let's say the middle part of this month, so not too long ago— along with this Thursday the 6th, I think it was, has offered quite good support. We're keeping a watch on this if we were to drift lower, uh, below here, this is when it might start to get interesting. Really be looking here probably at the, uh, the Wednesday of this week with the Fed coming into, into play there. Um, trend line you could have marked up from yesterday's lows. If you just had that drawn up, this might be something to have marked up on the chart, uh, going into the remainder of the session. Break of that and then we could perhaps get a further push to the downside. But at the moment we are having a bit of a recovery. The dollar under a touch of pressure, obviously not really helping the pound too much. Uh, to the upside, yesterday's high and, um, previous lows from Friday, areas to have marked up. Uh, 1.1333, uh, on the, the Friday low before that breakdown, and a few ticks below that yesterday's high as well. Oh, one in the in the mix now as well. Uh, just a, an area to have noted. Looking at the Aussie dollar, you can see we have been drifting lower. Those, uh, um, dovish comments from the RBA have only helped matters push to the downside despite a weaker dollar. Again, looking here at the longer term chart, you can see just how low we are and actually just have touched on the futures and just touching again the low of the year for the Aussie there. Way to look at this, I have a break, uh, of that, uh, level, uh, 6850, or really looking at any retracement points, previous lows or, or areas where the sellers have just come back in to look for that to happen again. I wouldn't be too surprised to have an opportunity or two in this market as we are just hitting those lows again. The yen this morning supported, uh, we were talking yesterday about just the importance of— and again, I'll just put this on the longer term chart— it's the importance of, uh, what was the previous high, the 13. A couple of tests of that, another one yesterday morning held really well, and we have pushed higher since breaking out of the range yesterday, early this morning around 2 AM. We have also found quite good resistance initially on what was the low of Friday morning, uh, as in today as well, only to, to break through that. Gold is very similar, uh, to this market, um, in that we have sort of broken above its, uh, range from yesterday. And also for the yen, just keeping an eye on the top end of this range, which is really the high that we had back on Friday. Gold, uh, you can see here breaking above yesterday's highs, breaking out of that range and, and pushing on. Uh, slightly more choppy, you could argue, uh, trading now. But what was quite a key level was the previous high of Friday, uh, then a breakdown point on Friday evening was also the high of today. So keeping a close, uh, look at the Friday high as an area of to retest, and also the Asian session high you would have marked up at 1340. 5.5 as well. Um, having a quick look over just, uh, stocks again, you can see the DAX still relatively near that low. Uh, the S&P is testing its S1 and the low of yesterday as well as we speak. NASDAQ just looking pretty similar in that we, uh, the area we were testing last night, uh, as an area support is being tested now, uh, as well. Oil just under a touch of pressure. You can still see the importance, really. I'm just gonna drag this wider of around here, 5179, 5180, 5174. Quite a key level of support that I would have marked up, just observing what happens around here. Break of that, and it's still not necessarily gonna be the area where we do completely run down. 5161, also a point that I'd have marked up up just where we had a previous high on the 13th. As usual, any questions, please do let us know. We'll of course be on the mic throughout the day. Just seeing a bit of dollar weakness across the euro, the pound drifting towards the upside, Aussie dollar under pressure because of the RBA, and the yen supported as we're having a bit of risk-off into the market. Hope you have a good day ahead.