Why Christine Lagarde will make a great ECB President

All right, very good morning to you. Hope everyone is well. It is Wednesday, 3rd of July, and as you can see to the side of me, this lady Christine Lagarde has been nominated as the ECB president role. Quite a surprise actually. She was on, on the list, but certainly wasn't on what I'd classify as the shortlist of the hot contenders. So this has come a bit of a surprise for markets and we'll probably spend the bulk of my time talking about what this means for potentially ECB policy and subsequently market reaction to what a Lagarde presidency at the ECB could mean. We'll have a quick run through of her background. Otherwise, there's a few other things. Earnings season actually starts in about 2 weeks' time. There's been some interesting developments ahead of that. What I would kind of look at is prepositioning from a corporate perspective as to what might be then a pretty, let's say, weak quarter in terms of not only the performance for now, but more importantly about the forward-looking expectations for profit over time. So we'll have a look at that. We had the API oil inventories overnight. How did they come out? And then we've got some UK data coming, which could be particularly interesting given how weak the PMI data has been, and with the comments from Carney, uh, yesterday, uh, putting the pound down at its lowest levels now where I'm speaking at this present point than where we've been in the last few weeks. So that's what's on the agenda, but let's kick things off and Quick overview of the charts before I go on to Christine. And this is a fairly, fairly flat open. I guess the one thing that does definitely stick out here is the fact that gold just continues to accelerate overnight. So that momentary foray below the 1400 level has been particularly short-lived. Yeah, when we broke below there, I mean, check out yesterday's session. What a beast for gold. I mean, we were down in the futures space at least at a low of $1,386, managed to hit a high of $1,424. That's a, that's a really strong move. Not often you see a one single candlestick print like that on a daily. Interestingly as well, with that, T-notes back on the ascent as well. So any, you know, this was that the gap down that we saw in the 10-year on the back of the fact that, you know, China and the US have put a temporary kind of hold on any further escalation on the trade war, and hence equities gapped up, T-notes down. But you can see quite quickly filled the gap, came back down to that what was, uh, on what would have been Monday session, the, the respective S2. But since that point, breaking that range on the retest, uh, from in the overnight session on the 1st, and then we've just continued to push higher here and trading above the R1 this morning. We'll have a look at the federal funds futures, so in the short end of the fixed income curve. And we were talking about first thing on Monday about how people were kind of pulling back on their, their bets on a 50 basis point rate cut. Well, that's changed again, and we'll have a look shortly. But the odds have increased. So we've reversed any move to what we saw in the initial knee-jerk reaction to any positivity from the developments from the G20. Otherwise, in the equity index futures, it's pretty, pretty quiet. European futures off to a slight positive footing. US pretty flat overall. WTI crude pretty sideways overnight, irrespective of the fact that we had, as we'll see in the API, is another drawdown last night. I'd say yesterday, um, continued to come off that kind of buy the rumor, sell the fact on the conclusion of the OPEC meetings. Not really coming of any surprise, their decision to roll over the output cuts for another 9 months. But let's have a quick chat about Christine Lagarde, because I was talking to Sam this morning and just having a quick look at Twitter this morning, and she is getting a lot of stick online, which I feel is totally unwarranted, because my view is— and I'll discuss why— I think she is an excellent choice to become ECB president, and I'll explain myself and why I think that. So what I've done here is I've kind of constructed a little list of pros and cons, and then importantly, what does it mean for markets. But starting off with the pros, I remember— so I started in financial markets as an analyst in 2006, and I remember squawking about Lagarde a lot pretty early in my career because she spent, what, the best part of 3 years working as the French finance minister. I think it was from 2007 to about 2010. So I know her from kind of back then, so very familiar with the, the type of way that she explains things, the type of terminology she likes using, her ability to communicate. From that point though, importantly, she went on to steer the ship at one of the largest kind of economic organizations in the world, and that being the IMF. Which she has been in control of and worked at for the last 8 years. Her previous background to these more, I guess, financial-oriented roles were she used to work in the legal world, so she's a smart cookie to boot, as well as being quite experienced in managing an organization on a large scale. So she is definitely not short of experience. In that regard. And as I said, one of the most important skills of which I think she's got in spades and is the most important for an ECB president is she is an incredibly skilled communicator. I'd say she's articulate. She can perform under pressure. Being from a political sphere, obviously she's used to taking questions and being kind of people trying to kind of poke her for a reaction. So she's definitely well equipped in an area that I think usually most candidates for a senior central banking role are incredibly short of. If you think of Jerome Powell, one of the biggest question marks is he's not short of experience, it's is he or does he have an ability to be able to stand up there in front of a microphone, you're one of the world's most important important influential positions and not buckle. It's not that he doesn't know what to say, it's how does he say it. And I think actually a central banking at a presidency level, I think is all about how you say it is almost more important than what you're saying, because the what you're saying is constructed from your team, from your debate that goes on from a European Council-wide level. And I think that is an important point because a lot of the criticism that's been thrown her way is that, well, that's fine. People know who she is and they know she has some gravitas. However, she has no monetary policy experience. Now, I would say, well, you don't need— you don't particularly need it because it's not you singularly making monetary policy decisions. Your role as president is to guide and chair meetings of all of the European Council members. And so you use and adopt the team around you, something which she's been particularly good at in managing her role within the IMF. So I definitely don't see her lack of monetary policy experience as a, as a, as a bad thing or thing that's going to be a restrictive factor, because I think her management skills are high enough. That she can, she can use the team around her to fill that gap. So, you know, she's not well known in monetary policy, she's not particularly well known as being at the forefront of the world's most kind of leading economists, but as I said, I don't think that's particularly a disadvantage in the sense that she's going to be well surrounded with people more than capable of those skills. The other thing here that I think is a great asset is that she's worked in the political world for such a long period of time. As I said, she was the former French Finance Minister, she's worked in the IMF, so she's been involved in things like the bailout of the— structuring of the Greek sovereign bailout, the Portuguese, the Irish. She's had to deal and be there in like the G20. She was in the family photo in Japan, in Osaka. So this is an important thing. She is already well known within those circles. She has proven to be quite a slick negotiator as well in order to restore credibility of an organization like the IMF, which had come under heavy criticism over the years. And so again, actually, I think that given the state of eurozone global politics, I think having a skilled politician is actually a clear advantage because we're going to have to deal with Trump over the course, likelihood when he gets his second term for the next 5 years. You've got this kind of surge in European populism, kind of epitomized in the, the issues politically being this confrontation between Brussels and Italy in particular. And so then you've got Brexit, of course. And I think having someone of her experience in that area, I think even though, of course, politics and central banking is supposed to be independent, I think being equipped with the skills of understanding nuances of the other side of the table, I think it's going to put her in an incredibly strong position. And then the other thing, you know, absolutely championing diversity in some of these most influential roles globally. I mean, being the head of the IMF is one thing. Becoming the ECB president really puts you up there on a pedestal of, from a global influencer. It puts you right up there, probably in the top 10, I would say. And absolutely, let's put a woman in, in charge of the ECB for the first time ever. And it's going to be alongside— I think it's the German defense minister taking the role of the European presidency as well, as what role as well. So I think that's a good positive step, um, given how dominated central banking is by males in that, in, in that respect. So all in all, what does this mean for markets? Well, Christine Lagarde is, or has been, an advocate of quantitative easing. I would say that I think two things that are important for me from a market's perspective. One is everyone in markets knows who she is, and I think she is very well respected within those circles, in the powers that be, from a— from the clout in financial markets. So therefore, I would say one of the biggest uncertainties you always have when a new central bank head comes in is about how are they going to— how are they going to be within that role. And we've never really seen them too much. They've always been in the background, like a Jerome Powell, Janet Yellen. They've always been there but never really on the front, uh, front kind of lead role. But she has been there, and I think markets will take comfort in the fact that there's some degree of continuity, that it eliminates uncertainties because she is a known figure. So I think that's one thing. So if you're looking for stability and continuity and handover from Draghi at the end of the year, I think you've got it in, in Christine Lagarde. Then the other thing is her monetary policy stance. Where does she sit on the scale? I would say she probably sits more on the on the kind of center dovish side of things. So remember the kind of situation, the juncture we face from a European policy perspective. Draghi is on the precipice of, of cutting rates again as far as markets are concerned, and potentially this idea of reopening the QE taps. I would say, if anything, that should be a relatively smooth transition for someone like her to take over. And then another big positive, I think, is that rather than have a, a Villeroy or a Weidmann, a former European Central Banker from an ECB board member point of view, take over the head, is that maybe it's quite good to freshen things up. She'll come in, sit in these meetings that she's never sat in before, and be able to manage them in a way where she can hear all these arguments between the North and Southern divide and, and see what the best course of action will be. But I think she is perfectly equipped, both intellectually, both from a management point of view of, again, filling the gap of her lack of any experience, if that were the case, in monetary policy on the economic side of things. And then overall, she is a supreme communicator, which I think is one of the greatest skills a central banker must have. So, yeah, that's my thoughts on her. I'll move on. But hopefully that gives you a flavor of what to think from a market's point of view. No massive knee-jerk reaction on the back of this news, but I think it's all but a foregone conclusion now that she will take that role. A few other things I wanted to, to cover, and I'm going to whip through these because I definitely want to keep this to under half an hour for me and Sam. But oil weighed down as global economic gloom rains on OPEC's parade. This is one of the headlines on Bloomberg, and an interesting graphic that they're running is this, which is a bar chart going back for the last, I guess, 5 years. And what it's encompassing is the price change on the day of a decision from an OPEC meeting. And so here you can see WTI crude, as in yesterday, had one of its worst reactions to an OPEC decision since going back to 2014. Does that make me feel bearish on oil? Well, yes and no. I would say everything needs to be taken in context, and what this, this bar chart certainly doesn't tell you is the type of movement that was seen prior to then the sell-off. I.e., we might have rallied $20, and if it comes off, you know, 5%, well then, I mean, we did rally 20%. So I think this is a little bit of a misleading chart in that sense. However, I think I think what is interesting, and I was talking about this in the briefing yesterday, was that the market's response seems to be that, you know, it's almost a given now that OPEC are going to have to keep rolling over these supply cuts, which does run down their options. I feel going forward that they've got to do something a little bit more powerful to change up and to get a market response if they do want to support prices going forward. One thing we had last night, we did have a crude drawdown in the APIs of 5 million. Um, this comes on the back, of course, of that whopping draw of 12.788 million we had in the DOE's, if you'll remember, which was also a draw of about 7.5 million in the API's last week. So that continues to be fairly significant in the magnitude of drawdowns, and yet the price doesn't respond. So I do think that that is interesting from the perspective of the fact that you know, beyond the fallout of the G20 and all these different things, I think markets are fairly concerned about this idea of a slowing economy and the pace of which it is now in contraction in some economic indicators like the PMIs that we've been seeing. And so this having a direct consequence on demand diminishing, at least from a market expectation, a supply and demand equilibrium. So Despite big drawdowns and despite OPEC's commitment, the fact that oil hasn't responded in kind, I think, is quite telling of the current state of play on people's perception about forward-looking growth potential. And on that point, this is, uh, quite an interesting article as well in Bloomberg talking about grim earnings forecasts are getting worse by the week. And the stat here is that earnings season starts in, in 2 weeks obviously a very important part or time of the year, and more than 80% of companies have cut their earnings outlook. Now this is what that looks like. So companies cut their profit outlooks for Q2 at the fastest— second fastest pace since 2015. So definitely corporations on a kind of a micro level are having to realign and manage, I guess, shareholders' expectations on the fact that, look, we too are also somewhat concerned. And interestingly, much like that Fed dot plot matrix, remember, that dips in 2020 but then rises thereafter. The interesting thing though about the cutting of profit outlooks in Q2 is that corporations as well see a dip and then a rise into Q3, Q4 of this this year. So is this kind of getting over that hump of the, the kind of worst part and then better days ahead? We shall see. But I think quite a savvy move by corporates to start doing this. As, as a consequence, analysts lower their expectations, so the bar for earnings season has started to decrease, meaning that then they can manage markets' perception when they inevitably meet or beat these depressed expectations. And even though the numbers themselves aren't great, the markets kind of hold up. So I see this as a little bit of managing of a, of what a public listed company generally does. But with that being said, given the movement in oil and the reasoning behind it, given what's happened with the corporate earnings, you know, after that G20 kind of knee-jerk response response at the beginning of the week. I mean, check out the federal funds rates. We're now pricing back to a 30% probability of a 50 basis point rate cut at the end of July. Remember, when we were looking at this on Monday, that had dropped under 20%. So we've added another third on top of it to come back to where we are. A lot of people looking at depressed US yields again, and evidently then the US T-note outperforming this morning again, up about 7.5 ticks. A few other headlines. Bank of Japan policymakers speaking overnight could maintain current ultra-low interest rates beyond the time frame it now sets, according to a board member overnight. How has the yen reacted to that? Well, it hasn't. I think this is kind of the status quo with much of the major global central banks, whether it's the RBA, RBNZ, Japan, ECB, Fed, everyone's now erring on the side of caution. And so I don't think comments like this are particularly surprising, but worth just mentioning. And then following up with this idea that the PMIs have really been evidence of this, this, the fragile nature of where we are economically globally, China's service sector slowed to a month low in June on subdued foreign demand while government policies boosted new orders. That is according to the Caixin, the private survey of services PMI overnight. One thing that I am interested to look at though as we go forward into today— I'll leave the cable setup for Sam— but you've got the service PMI coming out of the UK at 9:30, and I do think that'll be particularly interesting. And I think Mark Carney and the Bank of England already really know what this data is going to represent, and that is potentially the same as what we've seen with the other PMI data this week, which is— let me just refresh your memory of the current status of the UK economy. UK manufacturing PMI downturn deepens as the PMI falls to its lowest level since February of 2013. Output scaled back as new order flows contract. Business confidence dips amid ongoing uncertainty. So manufacturing lowest since Feb 2013. Construction output yesterday falls at the steepest rate since April 2009. New orders shrink as political uncertainty hits client confidence. Sharpest drop in house building in 3 years. You know, so Mark Carney yesterday corking up the prospects of potential easing, I think is just a fair reflection of the current state of the UK economy, with these forward-looking indicators really now starting to feel reality bite from the Brexit uncertainty. And the service sector, I think you had the BRC shop price data overnight again showing that prices are falling, would be indicative of diminishing demand. And so therefore potentially could see some downside in the, in the services number. But really, as, as we are aware of, given the composition of the UK economy, the service number is the most important. Be interested to see whether or not it follows suit. Do we get a kind of straight run of these negative PMIs, which could further accelerate the kind of more twist from being fairly sounding hawkish just a week ago or two weeks ago the Bank of England had their rate decision because of wages and potential inflation, to now being so overwhelmed by not just political uncertainty and the idea of a no-deal prospect rising under Boris Johnson premiership, but also now, uh, the real weight coming in, uh, and clear empirical evidence in the data set. So that's going to be a key thing to look out for. That's coming out at half nine, of course. The European ones are final figures, so I wouldn't be too stressed about those. The UK one more interesting. As we go into the afternoon, you've got ADP National Employment. Remember, you do have Nonfarm Payrolls on Friday even though US markets will be closed on Thursday. Um, you've also got the weekly jobless claims. So ADP 1:15, jobless claims 1:30, CAD trade balance as well. You get the market service PMI final reading at 2:45, but more interesting will be the ISM Non-Manufacturing PMI and factory orders coming at 3:00, and you get the oil inventory data at 3:30. So a really good day in terms of scheduled events, plenty to go at this afternoon. ADP key figure, um, factory orders, ISM Non-Manufacturing are your highlights with the oil inventories as well. So, uh, quite a busy afternoon. Speakers as well, Bank of England out in force. So if this services number was particularly weak, it could be interesting to see whether they add anything further to what Carney was saying. You've got Cunliffe speaking at 11 AM, Haldane at 12:20, you've got Broadbent speaking at 1:15. So they are out in force, the MPC. So keep an eye on that if you're trading the pound. The final thing I want to say before I sign off for my part is that remember American markets close early today. So the New York Stock Exchange, instead of closing at the usual time London at 9 PM, it shuts 3 hours earlier than normal, so 6 o'clock. So what normally happens on a day like this, I would say that US afternoon, so London time, uh, the kind of crossover 11:30 till about European close at 4:30, it's going to be very busy, and then it's going to die out because people then in the States want to get away to travel, to, to enjoy their, their Fourth of July holiday. So do bear that in mind with the types of trade duration and the timing of the strategies when you're on the execution side of things. All right, that is it from me. I'm going to hand you over to Sam. I'm going to wish you a great day ahead. Thanks very much, guys.

Hi guys, hope everyone is doing well. Have a quick look over the charts as a— and how we're trading and some of the opportunities that may come to light. Just having a quick look before we do so. The euro has come into its lower point, but the DAX pushing to a new high here, new high for, for the day, and breaking above the, the little range that we were in from this morning, yesterday evening, and the high from yesterday. Push, uh, just pushing through quite aggressively 30 minutes into, into the open. So decent, uh, break higher there, and that most likely is going to have a drag-on effect on the US equities, which had a good little finish to the day yesterday. Uh, we're stuck in a bit of a range between— well, there you go, the high of the day and the low of the day. A couple of false breaks pushed higher, uh, around half 8 into the, the electronic close. And we're now just testing what is the— well, in a matter of seconds could be the all-time high. Could be witnessing history, uh, right now. Before we go into some of the other markets, I just want to bring in this, this trade here. And Trading Live was down, so we couldn't post this in there in the room. And it was one of our traders here. This is on their own account, unfortunately for us, but such a great trade. And I was looking at it, and when I first saw it, I didn't really take into account just how good it was. Here you can see, we might be able to see using the, the gap for fill. So for, for oil, obviously we gapped higher on the weekend, or after the weekend, to, to come back down, and we didn't hit it until yesterday, which is this line here. So on the bigger picture, you can see here, this would be the way that trade was taken, where the gap fill, which of course acts as a level support. You also had S1, so that was the, the first original long to target. And we'll go back their trade in a moment. The, uh, the trend line, uh, sorry, that had broken through to get down there around 1 o'clock. So that was the profit target, just targeting a bit before that. You can see here they then turned it around to go short on the retest of that trend line, uh, back down towards what was the low of the day and that gap fill, and then got in on the, the classic— so the retest of the the S1 break in that little range as well and rode that down, which was, you know, just an absolutely incredible trade. So well done to that person. They're in the trading live room now, so if you— they want to admit it themselves, absolutely, they'll be after my job, I'm sure, very shortly. So really good trade there on that one for oil. And just having a look at the oil market now, I mean, could we get back up to 58.24. That would certainly be a level to, to have, have an eye on should we at any point do so. However, we are, uh, here we go. Yeah, well done, Oliver, great trade on that. Um, just having a look at these lows here, been a couple of opportunities with those breaks, hasn't there, of the, the trend line each morning. So just be keeping an eye on this. I know the volume is not going to be at its highest, but something to, to have marks up that trend line from those lows and to the upside, perhaps getting squeezed in as well. Uh, probably best off waiting either way for, for a break before really getting too excited. And I would say this was the same for, for equities yesterday, albeit, um, you know, it was short-lived on both sides. But you had the, the sort of quick-fire move. So we had the breakout here of, of, uh, of the, the little pennant up to the high and then to the downside to, to the low of the day. So decent, uh, decent opportunities come from, from these, these breaks, although of course you're not necessarily looking for these long-lasting moves. Uh, there you go, new all-time high in the S&P. Keeping an eye level-wise, you've got to eye up the, uh, the pivot yesterday's highs, quite a decent bit of price action around that point. Um, lower the day pivot yesterday's high should be a nice enough area Uh, if we were not to get there, it's lowering that, that time frame down. And I mean, you could argue, uh, we had a decent little breakthrough here, and you can see, uh, the reaction all morning. So that might be something to have eyed up should we come back to that point. But of course, better to trade in the afternoon. And even so, with, uh, Independence Day tomorrow, maybe we're going to see a bit of a sideways range for that. But on all-time highs, at the moment. All seems well and good for equity markets at the moment. Having a quick look over to currencies here, um, you've got that euro just finding a bit of support, uh, on what was a previous high. Let me just move that above the, uh, the camera. On the 19th, previous high that we found on that day there. So finding a bit of support there. S1 just below. To the upside, obviously keeping an eye on yesterday's low and also the levels that we had broken through in the early part of trade this morning. You can see again these trend lines working quite well in early trade, not perhaps getting the retest of that unless it happened in this 15 minutes. So that's something as well that I'd have marked up. And if you do think we're gonna push higher, again, trend line from the, the top, a break of that, you might see a bit of a relief rally for that pair. For the pound, under pressure, 9:30, keep an eye on the speakers as well. Um, maybe not necessarily wanting to get too, uh, involved aggressively now, but we are just breaking through the, the S1, so, you know, finding a bit of resistance on that point. Other key levels to the upside should we get there: yesterday's low, morning low, decent break around 7 AM, and we're also sticking to this trend for yesterday evening's high. I know a couple people took the S2 long trade, targeting the low, and S1, which, you know, was a, was a great trade. And you can see why we found resistance up there to drift down. So this trend line I would still have on, uh, for that as well. Uh, having a quick look over gold just to wrap it up because I know we have taken a bit of time. Similar in this to, to oil and that. You're just getting squeezed from both directions. Yes, the volume isn't going to be there, but maybe a little trade either way on the break, potential break of that, isn't a bad way to look at things. What a day yesterday for gold, incredible push. It filled the gap and then went some, just like the, the yen here yesterday. You can see it filled the gap and then went further on. To be honest, both of those trades, as you know, places gone short on the gap fill, you would have got a decent amount of ticks on that as it came down. And the break in the classic and the push higher for both of those trades was not a bad one at all. The yen is finding a bit of resistance this morning up on the high that we had from the 28th. That would be a key level. It's also— it was a high from the 26th afternoon. To the downside, and it is quite a technical market, the I'll be keeping an eye on yesterday's high that we did then break through in the early hours of trade as a potential area of support. Um, I hope you all have a great day. Any questions, as usual, please do get them in the chat. Certainly the calendar in the morning looks quite interesting from, well, now really you've got the, the French, German, European, and then UK numbers coming out. And then we have the ADP, obviously, 1:15, 1:30, 2:45 data. So decent data day. And of course, even the 3 o'clock numbers before the oil at half 3. So yeah, remains to, to be seen the, the extent of the, the moves that we're getting maybe post 3:30, 4 o'clock. But certainly on the lineup, it looks like it could be a pretty decent day. But I hope you all have a good session ahead, and any questions, please, please do let us know.