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Notes/Observations

• Focus remained on UK politics and Brexit as Downing Street said to be preparing for a no confidence motion in Theresa May as Conservative leader

Asia:

• Japan Fin Min Aso: Q3 GDP decline was impacted by natural disasters, exports probably impacted by trade issues
• US and China said to have doubled down on efforts to reach an agreement in the growing trade war, at the G-20 meeting later this month in Argentina (Note: Lighthizer's office issued statement denying the reports). Commerce Sec Ross stated that the US still planned China tariff boost to 25% in January and the meeting between Trump and Xi to focus on the "big picture."

Europe:

• UK PM May stated that approach on Brexit was to put national interest first; did not judge harshly on colleagues who reached a different conclusion
• Conservative Party power sharing alliance with Northern Ireland DUP party is reportedly over unless PM May is replaced
• Some UK MPs expect a 'no confidence' vote on PM May on Monday (Nov 19th). Under the Conservative party's rules PM May has to win a simple majority of 315 Tory MPs – 158 MPs in a no confidence vote

Americas:

• Fed's Powell: wages are now in a range reflecting inflation and productivity; I am carefully monitoring wages; haven't increased as quickly as hoped

Macro

• (UK) United Kingdom - News that Michael Gove affirmed his allegiance to Prime Minister May was seen by many as reducing the odds for a confidence vote, and at the least increases the odds of May surviving in the event that one does eventually arise. Most political pundits seem to believe May would survive a confidence vote, if it came to that, though the prospects for her Brexit plan to pass a parliamentary vote, which is set to take place on December 10,looks increasingly unlikely.
• (EU) ECB - President Draghi confirmed the path to phasing out QE. The ECB intends to end net asset purchases in December - subject to data. The ECB will at least stop to expand its balance sheet, even if the negative interest rate policy and ongoing re-investments will keep monetary policy very expansionary. Draghi also sent a thinly veiled warning to Italy when he said that high debt countries shouldn't lift debt levels further and respect the rules of the European Union.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.4% at 359.7, FTSE +0.2% at 7048, DAX +0.5% at 11411, CAC-40 +0.3% at 5048, IBEX-35 +0.3% at 9099, FTSE MIB +0.7% at 19032, SMI +0.6% at 8920, S&P 500 Futures -0.4%]
• Market Focal Points/Key Themes: Equities European Indices trade slightly higher across the board following a mixed session in Asia and a positive session in the US. US futures however are pointing to a lower open with the Nasdaq sharply lower after weak earnings from Nvidea, and outlook which fell substantially short of estimates. On the European corporate front Vivendi outperforms after earnings and acquisition, with Talgo, Kier Group and Good Energy among other notable risers after earnings and trading updates. Vallourec declines sharply after missing estimates and swinging the a loss. Elsewhere Tobacco names continue to be under pressure following a statement from the FDA on a potential ban of mental cigarettes; on the M&A front ABB trades higher after talk of selling their Power Grid business, Astaldi also rises after Salini Impregilo presents non-binding preliminary interest. Looking ahead notable earners include Helmerich and Payne and Viacom.
• Consumer discretionary: Vivendi Universal [VIV.FR] +6% (earnings; acquisition and comments on UMG sale rumor)
• Consumer staples: Imperial Brands [IMB.UK] +1.5%, British American Tobacco [BATS.UK] +0.5% (statement on FDA's potential ban of menthol cigarettes)
• Financials: CNP Assurances [CNP.FR] -0.5% (earnings), ABN AMRO Holding [ABN.NL] -2.5% (capital markets day)
• Healthcare: Astrazeneca [AZN.UK] -1.5% (provides study update), Hutchison China MediTech Ltd [HCM.UK] -18% (announces trial results)
• Industrials: Vallourec [VK.FR] -20% (earnings; transformation plan), Scania [SCVA.SE] -3% (Volvo said to sue company), Kier Group [KIE.UK] +3% (trading update), ABB Ltd [ABBN.CH] +2.5% (reportedly in talks with China state Grid, Mitsubishi and Hitachi to sell its Power Grid Business), Astaldi [AST.IT] +21% (Salini Impregilo presents non-binding prelim interest), Talgo [TLGO.ES] +5.5% (earnings; buyback program)
• Technology: Basware [BAS1V.FI] +46% (confirms press speculation on tender offer), Wirecard [WDI.DE] +0.5% (partnership with MasterCard)
• Utilities: Good Energy [GOOD.UK] +16% (trading update)

Speakers

• ECB's Draghi reiterated view that the regional economy had lost some momentum but believed the recent slowdown was temporary; growth outlook remained broadly balanced. Reiterated that expected economic expansion to continue in the coming years and saw no reason for it to come to an abrupt end. Patience and persistence was still needed in policy and reiterated view that underlying inflation had yet to show convincing trend up. Forward guidance had been effective in anchoring expectations about the future path of rates and preventing undo tightening. Anticipated net asset purchases to end in Dec and would be better placed in December to make a full assessment on outlook
• EU Trade Commissioner Malmstrom believed that US sought a larger trade deal that included agriculture. Stated that there was 'no chance' that would be agreed to
• EU's Dombrovskis reiterated stance Italy's draft budget for 2019 significantly deviates from commitment and openly deviate from EU budget rule
• UK PM May stated that was still working with North Ireland DUP party; no row about Foster supporting govt. Did not have a testy exchange with DUP leader Foster. Have not yet appointed a new Brexit Sec yet; to do so in coming days. Had a good conversation with Michael Gove
• Northern Ireland DUP party official Donaldson (part of coalition): Could review confidence and supply agreement with Conservatives
• Northern Ireland DUP party Brexit Spokesman Wilson: Focused on defeating Brexit deal
• Reports circulated that the necessary 48 letters were in to the 1922 Committee and Downing Street was preparing for a no confidence motion in Theresa May as Conservative leader
• Russia Central Bank Gov Nabiullina stated that it was not in a tightening cycle. Reiterated that restarting FX purchases depended on currency volatility and could recoup lost purchases over three years
• Japan Abe: To order a 2nd extra budget after returning to Japan

Currencies/Fixed Income

• The USD was on slightly soft footing but the focus remained on UK politics.
• GBP began the session on firmer tone as PM May survived the initial flow of resignations in her Cabinet and reports that the 1922 Committee had yet to receive the necessary 48 letters to begin a confidence motion. The bulk of the GBP's gain eroded as the session wore on as Downing Street was said to be preparing for a no confidence motion in Theresa May as Conservative leader

Economic data

• (DE) Germany Oct Wholesale Price Index M/M: 0.3%e v 0.4% prior; Y/Y: 4.0% v 3.5% prior
• (TR) Turkey Sept Industrial Production M/M: -2.7% v +0.3%e; Y/Y: -2.7% v +1.5%e
• (CN) Weekly Shanghai copper inventories (SHFE): 134.7K v 142.2K prior
• (AT) Austria Oct CPI M/M: 0.3% v 0.8% prior; Y/Y: 2.2% v 2.0% prior
• (RU) Russia Narrow Money Supply w/e Nov 9th: 10.30T v 10.27T prior
• (CZ) Czech Oct PPI Industrial M/M: 0.2%e; Y/Y: 3.3%e
• (CZ) Czech Sept Export Price Index Y/Y: 1.4% v 1.6% prior; Import Price Index Y/Y: 2.4% v 2.9% prior
• (HK) Hong Kong Q3 GDP Q/Q: 0.1% v 0.6%e; Y/Y: 2.9% v 3.3%e - (HK) Hong Kong Oct Unemployment Rate: 2.8%e v 2.8% prior
• (IT) Italy Sept Industrial Sales M/M: 0.0% v 1.3% prior; Y/Y: 3.9% v 3.2% prior
• (IT) Italy Sept Industrial Orders M/M: -2.9% v +4.9% prior; Y/Y: -0.9 v +0.8% prior
• (EU) Euro Zone Oct Final CPI Y/Y: 2.2% v 2.2%e; CPI Core Y/Y: 1.1% v 1.1%e; CPI M/M: 0.2% v 0.2%e
• (IT) Italy Sept Total Trade Balance: €1.3B v €2.6B prior; Trade Balance EU: €1.2B v €0.8B prior
• (CY) Cyprus Oct CPI Harmonized M/M: -0.3%% v +0.2% prior; Y/Y: 1.9% v 1.7% prior

Fixed Income Issuance

• (IN) India sold total INR120B vs. INR120B indicated in 2020, 2023, 2032, 2035 and 2055 bonds
• (ZA) South Africa sold total ZAR650M vs. ZAR650M indicated in 2025, 2038 and 2046 I/L bonds

Looking Ahead

• (BE) Belgium Debt Agency (BDA) announcement on upcoming OLO Bond auction
• (CO) Colombia Oct Consumer Confidence Index: -1.8%e v -0.7 prior
• 05:30 (BR) Brazil Sept Economic Activity Index (Monthly GDP) M/M: -0.2%e v +0.5% prior; Y/Y: 0.8%e v 2.5% prior
• 06:00 (UK) DMO to sell €3.5B in 1-month, 3-month and 6-month bills (£0.5B, £1.0B and £2.0B respectively)
• 06:30 (IN) India Weekly Forex Reserves w/e Nov 9th: No est v $393.1B prior
• 06:45 (US) Daily Libor Fixing
• 08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming bond issuance (held on Thursdays)
• 08:10 (UK) Baltic Dry Bulk Index - 08:30 (CA) Canada Sept Int'l Securities Transactions (CAD): No est v 2.8B prior
• 08:30 (CA) Canada Sept Manufacturing Sales M/M: +0.1%e v -0.4% prior
• 08:30 (US) Weekly USDA Net Export Sales
• 09:15 (US) Oct Industrial Production: 0.2%e v 0.3% prior; Capacity Utilization: 78.2%e v 78.1% prior; Manufacturing Production: 0.2%e v 0.2% prior
• 11:00 (US) Nov Kansas City Fed Manufacturing Activity: 11e v 8 prior
• 11:00 (EU) Potential sovereign ratings after European close: (Netherlands; and Switzerland Sovereign Debt to be rated by S&P; Austria Sovereign Debt to be rated by Moody's; Romania Sovereign Debt to be rated by Fitch)
• 11:30 (US) Fed's Evans (non-voter, dove) speaks at Fixed Income Forum Roundtable
• 13:00 (US) Weekly Baker Hughes Rig count data
• 16:00 (US) Sept Total Net TIC Flows: No est v $108.2B prior; Net Long-term TIC Flows: No est v $131.8B prior

The Australian Dollar has been moving in a descending channel against the New Zealand Dollar since August 10 after the currency pair hit the upper boundary of a downtrend line at 1.1150. The Aussie has lost about 5% of its values since the decline started.

The exchange rate was trading near the bottom border of the descending channel pattern at 1.0643 during the morning hours of Friday's session and could be prepared for a breakout.

If this breakout occurs, the next target for the AUD/NZD currency exchange rate will be at a swing low of 1.0550 during the following trading sessions.

The Canadian Dollar has been trading in a triangle-like formation pattern against the Swiss Franc September. The currency pair re-tested the upper boundary of the pattern at 0.7680 on November 5.

The exchange rate has been moving sideways within a range of 0.7548 and 0.7700 since the beginning of October.

Everything being equal, it is likely that the CAD/CHF currency exchange rate increases its trading range during the following week.

Moreover, technical indicators on the weekly time-frame suggest a bullish sentiment during the next week trading sessions.

The Australian dollar holds in red on Friday and eases after three-day rally which resulted close above falling daily cloud and main bear-trendline which tracks the downtrend from 2018 high.

Bulls are running out of steam and stalled on approach to key barriers at 0.7302/14 (08 Nov / 26 Sep highs) as hopes on US/China deal which fueled recent rally started to fade.

On the other side, daily techs maintain strong bullish momentum and MA’s created a number of bull-crosses, remaining supportive for further advance.

Weekly close above broken trendline resistance would provide additional bullish signal, which needs confirmation on sustained break above 0.7302/14 pivots to signal continuation of recovery phase and also generate stronger reversal signal of 10-month downtrend.

Today’s easing so far holds above key supports at 0.7250 zone (broken trendline / daily cloud top) which need to contain dips and keep bullish bias.

Negative scenario on return and close below these supports signal another false break above cloud top / bear-trendline, which would weaken near-term structure.

Res: 0.7288, 0.7302, 0.7314, 0.7374
Sup: 0.7247, 0.7225, 0.7188, 0.7164

Watch for the dollar fade

USD bulls focused on accelerating fundamentals, strong corporate earnings and rising rates, and they were right. But negatives will catch up to the dollar in 2019. Surging public deficits and widening trade imbalances will increase the supply of USD-dominated assets and damage the value of dollar. Not to mention the chaos expected as President Trump and Democrat House go toe to toe, every day. The political gridlock will highlight the economic instability of the USA. Higher US interest rates have increased the cost of hedging USD exposure for international investors. Demand for the Euro should rise as the European Central Bank shifts toward normalization and yields rise.

US-China short-term breakthrough unlikely

There is a high likelihood that the meeting of US President Donald Trump and Chinese President Xi Jinping later this month won’t be game changing. The best-case would be that both leaders confirm their intent to maintain talks. The US’s latest request to China concerns 142 different items, with questions ranging from trade surplus to China mainland market opening, so this will require time from both sides. The request also raises the prospect of the US implementing further duties, currently valued at 10% of USD 200 billion and expected to reach 25% by the end of the year. Although the Chinese government is showing willingness negotiate, it appears less likely that a resolution will be met promptly. Accordingly, we expect the Chinese yuan to remain highly influenced by media announcements in the coming weeks leading to the Trump-Xi meeting.

The pound had a heavy drop against a number of currencies yesterday, as two senior ministers resigned, plunging the government into crisis. As a result, cable suffered one of its steepest drops in one day marking a 1.7% dive, the widest for more than a year. Amidst resignations, a possible leadership contest in the Tory party, fears of the Brexit deal collapsing, investors seem to have priced out also the possibility for the BoE hiking next year. UK’s PM Theresa May vowed to continue in a statement after the resignations were made known and supported the Brexit deal as she did previously in parliament. Analysts point out, that the possible outcomes now range from the current deal, to hard Brexit, a general elections, as well as a new referendum. Volatility is expected to continue for the pound, as further Brexit headlines could continue to reel in.

Cable dropped heavily yesterday, freefalling from 1.3015 (R3) and breaking consecutively the 1.2920 (R2) and the 1.2850 (R1) support lines (now turned to resistance). It continued to drop by testing the 1.2780 (S1) support line and for a brief period breaking it, only to correct later on. The pair seems to have stabilised for now, however volatility could occur towards both directions, depending on the headlines about Brexit today. Should the bulls be in control of the pair’s direction we may see it breaking the 1.2850 (R1) resistance line and aim for the 1.2920 (R2) resistance hurdle. Should the bears take over once again, we could see cable breaking the 1.2780 (S1) support line and aim for the 1.2700(R2) support level.

Oil prices remain stable after record inventories injection

Oil prices remained rather stable yesterday, despite the EIA showing a record injection in the crude oil inventories of 10.27 million barrels. The injection is considered as the widest in 2018, and was accompanied by a record production of US crude oil of 11.7 million bpd, last week. It should be noted though that the news could have been overshadowed by reports stating that OPEC may intent to cut production substantially. Overall the market seems to be in a wait and see position, maintaining the current level of pricing. Analysts point out though, that crude oil may be oversold and could bounce from current levels, as OPEC+ dials back production in December. Oil prices could be at a turning point right now and as analysts point out, the current level of oil prices may be presenting an opportunity for buyers to enter the market.

WTI prices remained rather stable yesterday, above the 56.15 (S1) support line. Technically, despite the stability in the price action of WTI in the past two days, we would require the commodity to break the downward trendline incepted since the 3rd of October in order to lift our bearish bias. Should black gold’s price action, find fresh buying orders along its path, we could see it breaking the 58.30 (R1) resistance line and aim for the 60.00 (R2) resistance hurdle. Should on the other hand, WTI come under the selling interest of the market, we could see it dropping and breaking the 56.15 (S1) support line and aim for the 54.15 (S2) support area.

In today’s other economic highlights:

In today’s European session we get Eurozone’s final HICP rate for October. In the American session, Canada’s manufacturing sales growth rate for September, the US industrial production growth for October and the Baker Hughes oil rig count figure are to be released. As for speakers, ECB president Mario Draghi, German BuBa president Jens Weidmann and Chicago Fed President Charles Evans speak.

GBP/USD H4

Support: 1.2780 (S1), 1.2700 (S2), 1.2600 (S3)

Resistance: 1.2850 (R1), 1.2920 (R2), 1.3015 (R3)

WTI 4H

Support: 56.15 (S1), 54.15 (S2), 52.10 (S3)

Resistance: 58.30 (R1), 60.00 (R2), 61.73 (R3)

Yesterday the major currencies were showing some active trading. The USD Index (#DX) closed the trading day in the greed (+0.13%). The situation around Brexit remains in the spotlight. The pound is weakened against the American currency by 200 points and reached the 1.28 USD mark. The government of the UK does not approve the current Brexit project. Dominic Raab, the Secretary of State for Exiting from the EU, announced his resignation. He states, that he cannot accept the current conditions of the London and Brussels treaty. Political pressure in Great Britain keeps pushing the pound down.

The USA published a series of ambiguous reports. In October the volume of the retail sales grew by 0.8%, which is higher than the 0.6% expectations. In November the Purchasing Managers' Index by Philadelphia Federal Reserve dropped from 22.2 to 12.9. The financial market participants are waiting for the EU inflation report.

The quotes on oil started to recover. The WTI futures are testing the mark of 57.30 USD/barrel. We recommend you keep an eye on the U.S. Baker Hughes Oil Rig Count – 20:00 (GMT+2:00).

Market Indicators

• The major US stock indices closed in the green: #SPY (+1,04%), #DIA (+0,92%), #QQQ (+1,75%).
• The 10-year US government bonds yield is 3,10-3,11%.

The Economic News Feed for 16.11.2018:

• Customer Price Index (EU) – 12:00 (GMT+2:00);
• Manufacturing Sales (CA) – 15:30 (GMT+2:00);
• Industrial Prodaction (US) – 16:15 (GMT+2:00).

Fundamental Analysis

Apple, the heavyweight of NASDAQ, entered in a bear territory a few days and dropped below the critical level of $190. This was primarily because analysts are worried that the company doesn’t have another unicorn product in its assembly line. Well, we don’t think that Apple’s stock is going to follow the same path of Nokia. Remember, Nokia used to be the pioneer of the industry at one point in time. But look where it is now and more importantly why? Of course lack of innovation. Similar signs are emerging for Apple as well, if you look at the iPhone cycle, we have not seen any phenomenal changes. How many people really need to upgrade their iPhone every year just because the processor is a little faster now or they have removed the home button. Big deal. The music and storage business for Apple is good but nothing innovative there. Apple’s watch is the least innovative product that the industry can see.

Nonetheless, I think Apple still has some time to get its act together if it wants to avoid a similar fate.

Technical Analsysis

In terms of technical analysis, the price is clearly trading in a downward trend on a 4-hour time frame. The selling pressure is intense and this is because the price has broken out of the downward channel to the downside. The price is testing the lower line of the downward channel and if it fails to break above this mark, it will confirm that the current corrective move wasn’t supported by the bulls. Another confirmation of a strong bear trend comes from the fact that the 50-day moving average (shown in yellow) is trading below the 100-day moving average (shown in green).

The RSI is trading in an oversold zone. Any reading below or near enough 30 is considered as oversold and this sends a bullish signal and any reading above 70 or near enough 70 shows it is overbought. This sends a bearish signal.

The Balance of power is also controlled by bears and the indicator is firmly sitting in the negative territory.

US markets are in a recovery mode. FTSE was hammered yesterday and stocks with domestic exposure were hit hard. Theresa May's leadership is being challenged, will she survive?

U.S. futures and European markets are trading higher as investors have decided to focus on positive affairs such as the possibility of a trade deal between the U.S. and China. This is still very fragile so we are not sure if this will last. Nonetheless, the U.S. equity markets broke its 5 days losing streak last night on the back of these hopes. We saw bargain hunters jumping back in the tech sector. Apple's stock which entered in a bear territory had some recovery but it has a long go before it gets close to its all-time high of $230.

Back in the U.K, Brexit chaos is the biggest circus of modern politics and sterling is the poison pill. Sterling's overnight volatility is sitting at a level not over in 13 months. In fact, the pound-dollar two-month risk reversal, a gauge of market positioning and sentiment, shows speculators are still biased for more sell-off. The currency's volatility is the same as that of emerging markets. Let's just say that sterling is bitcoin of G10 fx basket.

If anyone wants to see the effect of disorderly Brexit, one doesn't have to go far to look for it, just look at the FTSE. Stocks with domestic exposure were hammered yesterday. Under this uncertainty, we think that the worst days are ahead of us. This is because the chances of Theresa May surviving as a prime minister are minute, change in leadership is unavoidable now. Let's just hope that there is only change in the leadership not change in the regime or another election (which is not due until 2022). RBS was hit hard yesterday on the back of fears that there could be a change of regime in the U.K and under Jermyn Corbyn, we could see RBS much smaller than what it is now- too big to fail theory.

U.K's housing sector is already suffering. Even in London, the most loved city in the world, house prices have slumped and major home builders such as Berkley Group had their stock beaten down yesterday.

Businesses hate uncertainty and the current uncertainty is even more poisonous than the gas chamber's gas. A vote of no confidence is unavoidable now and the prime minister is struggling to find a person who can fill in the role of Brexit Secretary job. Given the circumstances, it is likely that the Nov.25th summit is going to be discussing the topic of a 'no deal divorce'.

Back in the crypto space, Nvidia produced another disappointing sales forecast and a lot of this down to the slump in the cryptocurrencies. There was a time when everyone wanted to instal a mining rig in their basement or under their desk but given the price of Bitcoin, those days are way behind us. But remember, it is only a phase because I firmly believe that good projects will survive and Bitcoin's history shows that the currency is more adopted in the mainstream now than 10 years ago. Remember, this quarter's sell-off is not even close enough to the sell-off which we experienced back in Q1. As long as we do not see that kind of intensity coming back in the market, I believe Bitcoin is a safe bet.

EUR/USD continues to move higher has posted slight gains in the Friday session. In European trade, the pair is trading at 1.1354, up 0.22% on the day. On the release front, Germany’s Wholesale Price Index dipped from 0.4% to 0.3% in October, but still beat the estimate of 0.2%. The markets are keeping a close eye on eurozone inflation indicators. Final CPI and Final Core CPI are both expected to improve in October, with forecasts of 2.2% and 1.1%, respectively. There are no major U.S releases on the schedule.

After sharp losses at the start of the week, the euro has reversed directions and recovered, despite some dismal numbers out of Germany. On Wednesday, Germany reported that GDP had declined 0.2%, marking the first contraction in GDP since 2015. If investors are concerned that the largest economy in the eurozone is slowing, they didn’t respond by dumping their euros. German officials put a spin on the weak release, saying that the contraction was largely due to weakness in the auto sector as a result of new pollution standards. In truth, it’s likely that the skid is also due to the global trade war, which has also resulted in U.S. tariffs on European products. Another alarm signal is weak investor confidence. German ZEW Economic Sentiment posted a second straight soft release for November, with a reading of -24.1 points. This points to deep pessimism on the part of institutional investors and analysts. The ZEW added that investors did not expect a rapid recovery from the current weakness, which could weigh on the euro.

Consumer inflation and spending numbers were strong in October, as the U.S. economy remains strong. On Thursday, the U.S released retail sales reports. Retail sales rebounded with a strong gain of 0.7% in October, after a decline of -0.1% a month earlier. Core retail sales jumped 0.8%, after a gain of 0.1% in September. There was good news from the inflation front on Wednesday, as U.S consumer inflation numbers beat their estimates for October. The consumer price index posted a gain of 0.3%, its strongest gain since January. Core CPI, which excludes food and energy prices edged higher to 0.2%, marking a 3-month high. Both releases were in line with forecasts. Core CPI was 2.1% higher than a year ago. The solid consumer data means that the Fed remains on track to continue raising interest rates. The Federal Reserve holds its next policy meeting in December, with the odds of a December rate hike at 72%, according to the CME Group.