Will Brexit Talks Impact GBP?

Okay, very good morning to you. It is Tuesday the 8th of September. Hope you're doing well. First things first, don't forget to subscribe to the channel if you're new to us. New content coming every day from myself and the rest of the team. And on that note, you might have seen a fresh video from Eddie on our Markets Explained kind of category, and he goes into a little bit of detail about a lot of this talk of SoftBank, the Japanese conglomerate, and how they potentially have been propping up the tech sector in the US that's led to this phenomenal rally in US equities, chiefly buoyed by some of the tech giants and the options activity that they've been apparently involved in. So you might well enjoy that video. I suggest checking it out. If you just go on to the, um, the Amplify Trading YouTube channel, you'll be able to find it. But let's delve straight into the markets and look at what's going on today. And Just as we go through the initial phases of the European Open, we've had a little bit of a jolt in the currency markets, fairly moderate albeit. But do remember that the US are returning to market after their Labor Day holiday yesterday, so it's not uncommon to see a little bit of erraticness just as they start to come back in. And obviously we'll be eagerly awaiting the reopening on Wall Street to see how it fares in the equity space following the 2-day sell-off that we had of a fairly aggressive nature at the end of last week. Yesterday was pretty tame across some of these US assets, US equity indices, crude oil futures remaining a little bit suppressed at the moment, sub-$40 on some of those headlines that are reading yesterday. Potentially a bit of an eye on the demand side with the COVID developments and the speed of recovery globally in certain geographic regions, overlaid with some of the idea that Saudi Arabia signaling fuel demand is wavering in these key markets as well. Um, but yeah, as the US come back in today, it'll be interesting to see how they, you know, take on the baton here from what otherwise has been a little bit of a rocky end to last week. And with them coming back fresh eyes to restart the new week ahead, the other asset classes, um, the dollar index, as I said, as we've just gone through the European Open, it's just reversed course of some of the Asian gains that we've seen. So a little bit of a move higher in both EURUSD and cable, but cable remains one of the most kind of standout major currencies, and we'll talk about in a second. But otherwise, elsewhere, T-note's pretty flat overall. Gold hugging the pivot and the daily pivot levels in the futures, trading at $1,938.50, which is up around $4 in pretty much consolidation mode, probably yet to see any real definitive movement until North American hours. But as I said, cable's been one of the notable movers Sterling did fall for a fourth day yesterday. And as we know, Boris Johnson kind of sticking by his word and this idea that he's ready to walk away, as he's always kind of said, and that tentative kind of deadline for October 15th to reach a trade accord. And this of course comes as they go into the 8th round now of trade negotiations really kicking off in earnest today. One of the things here then is Boris Johnson's taste for Brexit danger. Bloomberg in an article just highlighting a couple of different factors. The fact that he led the Leave campaign, as we know, he likes a political gamble, like when he was kind of providing headaches for Theresa May and then stepped out of that and then started flirting with the backbenchers within the Tory party. He then reached a breakthrough with the Irish PM in exit talks last year, which came at the 11th hour, which he was able to broker and create an olive branch compromise right at the last moment. And then Brexit is not the center of political debate, so given the fact that the, the major distraction here has been the pandemic. So, you know, all of these things, uh, perhaps then support the notion that this is going to go down as has it done in every pretty much ebb and flow of this Brexit saga, uh, down to the 11th hour. One of the major differences though here is that the Premier likes to be popular, and support for no deal is, is low. So this is one of the biggest risks, I'd say, at the moment to the strategy being adopted, as per those points I've just mentioned, is that at the moment Conservative popularity, as per various different opinion polls, has been decreasing rapidly following a summer full of U-turns from the government. And so with these other things that we've mentioned before, things like furlough, for example, coming up for expiration at around the time where these soft trade accord deadlines are also happening. And also with COVID cases in the UK currently on the rise, um, it's just going to be interesting to see that— can he really continue down this line at risk of compounding the economic consequence when general public's appetite for Brexit now has been diminished because people's livelihood and jobs are at risk? And the tangible prospects that COVID is having, particularly on the, uh, the conclusion of the furlough program, of course, as well. So, um, it'd be interesting to see how this plays out. One thing I would say is what a politician says one day and what they do the next day are two completely different things, as I'm sure you're more than fully accustomed to. So just because he's talking this way, I think this is more just, look, we're going into high-level talks we're getting into the final kind of lap now before real kind of definitive deadlines start arising for Brexit. And so I think this is a tactic that we've seen deployed from the UK government on prior occasions. The ultimate thing here though is that, um, I'm going to go to this, this graphic here, or this article. Most economists ranging from Goldman to JP Morgan Stanley, they all still anticipate a commerce deal will be in place by the time of the end of December. And this is largely reflected in some way in markets in regards to the amount priced in for potential volatility around certain periods, uh, in the weeks and months ahead, which is relatively tame comparative to what we've had in 2019 and 2018. So people assigning a lesser probable risk of a messy no-deal Brexit. One of the things here, JP said just to give you an idea of what these banks are looking at and their general take on things. And they say that having tested each other's resolve, a late intervention by political leaders will generate a messy compromise which provides a skinny deal with both sides opting to avoid the disruption. So for me as well, I think the COVID developments that are happening actually within Europe at the moment— and that's one thing to just contemplate, uh, this is a look at the UK and the COVID situation The UK recorded close to 3,000 coronavirus infections for a second day running on Monday. Uh, the Health Secretary Matt Hancock was warning, uh, it's more demographically more affluent young people, typically defined then by the age of 17 to 21 category, that are not being perhaps as disciplined with the appropriate rules of social distancing and so on, and therefore then passing it on to more age categories of risk, i.e., older people. But, you know, UK is not the only one. In Spain, the number of hospitalizations has gone up by 14 times since the middle of July, while in France, the number of people in hospital has trebled over the past month or so. So at the moment, again, how bad this COVID situation gets, and if it does materially worse— get worse in the UK, I do find it particularly hard to see Boris Johnson's government following through with this kind of threat of just walking away from a deal, because the COVID situation no doubt will just make them— the market's perception and the public confidence about the speed and shape of recovery will become less strong. And therefore, the worst case that they could do at that point in time is make that situation worse by having a very messy Brexit. So yeah, just, just my take on a couple of different things. One thing I would say for sure when it comes to monitoring this type of news— I did tweet this out at the beginning of the week, so just check out my Twitter handle here if you need this graphic— but if you were being super vigilant and you were an intraday headline-driven kind of macro trader and you wanted to be super agile, You've got the timings here of morning and afternoon, late afternoon sessions, and what exactly they're talking about, the subject matter over those periods. So for me, what I would do is I would kind of bookmark out, well, what are the key areas? And actually, you know, today there are, there's some key ones. I mean, there's level playing field for open and fair competition, that's been a major sticking point. Horizontal arrangements and governments, a major sticking point. Fisheries, and trades in goods. So really, all of these top, top topics here are the main things that could potentially— upon then exiting from these talks, generally then these politicians might be talking to journalists who might tweet, and you might get a source comment. So if you're just aware of the general timings of things and the order of play, and this is, this is happening from the afternoon onwards, then I would say perhaps then from 6 PM, have it a guess that at the end of 6 PM today and tomorrow, particularly tomorrow, because then that's when the meeting of the chief negotiators will happen. I reckon you'll already have a pretty good sense of where their heads are at and what the deal is by then. So keep an eye out for any late evening sterling volatility, I would say, would be my advice. Okay, on Trump, you probably would have read this overnight. A few people pinning this on a little bit of the reasoning behind some of the Asia-Pacific weakness in geographically for Hang Seng and the Shanghai comp. But I'd say the losses were very minor, to say at best. A couple of things here. Trump again raised the idea of separating the US and Chinese economies, otherwise known as decoupling, suggesting the US would not lose money if the world's two biggest economies no longer did business. Now, that's not the first time he's made this type of anti- anti-China rhetoric and talked about decoupling. I think you do have to, of course, take this within context. You know, for me, this is just classic Trump framing for the election campaign. It was a US bank holiday. He delivered the speech from the steps on the foyer of the White House. It's kind of just classic, um, you know, kind of political PR in this sense. So I don't think you should read too much into this personally. I don't think the markets should be too concerned or spooked by what he said yesterday. But one of the other things that has happened is the Trump administration is considering a ban on importing products containing cotton from the Xinjiang region of China in response to Beijing's alleged repression of a certain group of minority Muslims in western China, according to two US officials. Now, as context, that particular area, Xinjiang in China, produces 80%, 8-0%, of China's cotton, and the US imports some 30% of its apparel from China, of course. So, you know, one of the things to be aware of here is that matter. It's just another area of potential contention that could arise in a more meaningful way as we see the other areas of escalation around specific types of products that are interchanged between the two trading partners. But again, Trump talking about this decoupling— Trump also said in the White House briefing yesterday that a vaccine will be ready in October. It's just the usual rhetoric that you would imagine as he tries to take advantage of when on a bank holiday there's more people generally at home watching TV. He can communicate his message and so on. So I don't think at all that a vaccine is going to be coming that early, and I don't think they're going to decouple from China. But the, the issue on the Wang buying products with cotton, that's a little bit more interesting. But even that in itself, I don't really see as a real major threat to today's session. But context, remember yesterday we were looking at that Goldman's US-China kind of benchmark measure that they use, and that decreased last week. There was pretty much no real major headlines pertaining to the two last week, and now we're starting to see the re-emergence of some. Again, this feels a little bit like that kind of continuous trade war loop that we go from fairly conciliatory tone to a little bit more assertive and then back and forth again. And I don't really think this is too much different, to be quite frank. Otherwise, looking at the calendar for today Uh, it is really quiet actually. There's not really a great deal going on at all. And from the eurozone, the GDP Q2 revised numbers, the final employment figures, I'm not expecting too much movement out of those. And there's really nothing coming out of real substance out of the US from a scheduled economic data point of view, apart from a $50 billion in a 3-year note auction later on at 6 PM London, 1 PM in New York. But otherwise, the major things I'd be concerned with is just you know, marking up your technical levels, thinking about how does the Wall Street open. I'd be more interested to just kind of wait and see that first half an hour phase of opening when the volume and volatility kind of just generally picks up naturally, just to see if the markets can regather a bit of composure after the move that, that we saw at the end of last week. And certainly maybe the long weekend might help with that. Yeah, otherwise the Brexit situation Probably sensible to keep an eye on the pound. And as I said, timings-wise, you can use that, that timetable that's available on my Twitter account to familiarize yourself with the exact timings of the issues being discussed. All right, that is it, guys. Gonna leave it at that. Any questions, as usual, just let me know. Always happy to help. And have a good day ahead. Thanks very much.