 Okay, good morning guys Final day of the week 27th of September, so let's get straight into the action. I will give a sort of full rundown on the the news flow overnight, you know one of the main features from yesterday was this testimony On Capitol Hill over in Washington this Trump impeachment saga just circulating But so we'll talk about that a bit later But I want to get straight into the action here because we've had a bit of a move lower on the pound this morning I'm just gonna bring this Cable chart and make it a little bigger. We're looking over the last few weeks here. I've got a one-hour chart This is sterling versus the dollar So I had a couple of lines on here, but you know, certainly we've had a nice steady downward trending Scenario here as we've been through this week And indeed, I mean I'll just quickly go to the daily chart, you know, this has been the theme Yeah, we've had kind of three quite steep down days in a row if you include this one as well But that's coming off the top of what had been a Rebound September had been pretty positive for cable coming off the 120 handle that we had tested Back at the start of the month that had been a pretty solid climb up to 126 You know up to test the areas that we'd seen mid-July But certainly yeah this week it certainly came come under a lot of pressure as we've had the all the You know developments with regards to the proroguing of Parliament being made illegal and all the rest of it And so sterling has been under pressure and just now this morning We're down testing this low from the 27th of August, but if I zoom in back to the one-hour chart You'll see what happened. We broke through the low point from yesterday. So yesterday We had a nice, you know extension of the trend lower Trading down to test s1 If I just get my rectangles over here s1 here was down tested at 10 a.m. And then we bounce and consolidate it So this morning drifting Sort of sideways overnight nice resistance to the pivot level earlier on and then we're down and we've broken through yesterday's low down through s1 and the reason for this was some comments made from Someone from the Bank of England so if we just have a quick look at the headlines here. So Bank of England saunders Has said that Prolonged high Brexit uncertainty could warrant looser monetary policy if global growth remains disappointing So he's got a speech today. This is a pre-release Of the text of his speech and the kind of picking out of the main points He's talking about these adverse effects of high uncertainty of becoming clearer in the UK macro data He's saying the economy has slowed markedly since earlier this year. The economy has not crashed But the effect of Brexit uncertainties is perhaps akin to the economy developing a slow puncture Such that growth has slowed to a mere crawl Some further monetary tightening limited and gradual probably would be needed to return inflation to target on a Sustained basis if global growth recovers if global growth recovers and Brexit uncertainties fall significantly So he's basically saying that if this weakness in the global growth situation improves and if the Brexit risk Disappears then yes, maybe the Bank of England should be looking to hike rates But he's saying in the absence of that if we do get a continuation of Brexit uncertainties, you know Brexit gets pushed to 2020 or if you know Boris tries to come out of the EU With no deal on Halloween Then obviously that will prolong the Brexit Damage on the UK economic confidence and it's not looking like the global situation is going to improve anytime soon So certainly the headline is dovish You know prolonged high Brexit uncertainty could warrant looser monetary policy. So the pound Certainly die. I mean, it's trending lower anyway, and this just helped it along to continue the downward trend So a nice break out here this morning taking a sterling a little bit lower I mean, where are the Bank of England if we have a look at the Bank of England interest rate chart here. So This is looking back over the last few years, of course, and they they cut rates When we voted to leave the EU back So actually August 2016 the Bank of England cut rates some and just a little tweet lower 25 basis points down so they cut from 0.5% to 0.25% just to try and Allay people's fears and panic in the immediate aftermath of that surprise vote or the surprise result of the vote Then they hiked rates at the end of 2017 and that's because it was like, oh, hang on Actually, this Brexit risk hasn't had the damaging effect on the UK economy that we had thought and actually really more than that It was actually the global economic situation was very bullish at that point 2017 saw the highest Global growth rates since the crisis and the UK benefited from that like everyone when the global growth story is positive then The UK benefited and actually therefore the Bank of England hiked rates You know reversing that emergency cut after the Brexit vote so the height rates end of 2017 Then they hiked again in 2018 for the same reasoning that you know The global growth story at that point was very bullish inflationary pressures in the UK was starting to build and so they they hiked to 0.75% now ever since then we've been flat and of course as we've gone into the second part of 2019 you know the global growth story has deteriorated and Brexit continues to rumble on unresolved and as Saunders has been saying, you know the uncertainty of Brexit alone carries quite a damaging effect on the underlying economic system You know, it's a confidence thing. We we just don't like uncertainty You know human beings will tend to fear the worst prepare for the worst when we're not sure what's going to happen And so it's having it's biting and so Saunders perhaps opening the door here for The potential rate cut from the Bank of England. They've got a meeting at the start of November, which is their quarterly Inflation report meeting. This is the big one. Normally they only change interest rates at one of their what's called their qir So every other meeting carries Extra importance where they update their inflation forecasts They update their growth and unemployment forecasts and this is where we also get a Mark Carney press conference where he explains everything These tend to be the occasions where they actually make moves on rates. So you're seeing the pound here this morning just Elevating the probability that we're going to see a rate cut from the Bank of England in November It's going to be interesting because their meeting is literally the week after the current Brexit deadline Halloween. So Obviously, we're probably going to be right in the thick of the action is Boris going to try and take us out of the EU with no deal And then would there be a Supreme Court kind of intervention? Ruling that illegal and it's going to all be a bit messy. So certainly Bank of England rate cuts getting priced in so let's Let's change change up the story. What else is going on and Here's The kind of main feature of yesterday afternoon This is all about the Trump impeachment situation, of course His telephone call with the Ukraine president Did he threaten to withhold military aid in return for information about Biden? information that he can use to try and help his Here's prospects in the general election. That's going to take place in November 2020 Just turn that down so we had a testimony live testimony from Joseph McGuire here Acting director of national intelligence. So he got shoved in front of Congress and got grilled by some angry Democrats And It's hard to know what's going on here because it looks like from this testimony if I go down the whistleblower I actually made the complaint quite a while ago. So one controversy is well Hang on. Why is this complaint now only just surface? So it looks like they try to quash and block and hide the complaint But the whistleblower themselves who remains anonymous by the way has sent that this is from their complaint I learned from multiple u.s. Officials that senior White House officials had intervened to lock down All records of the phone call, especially the word-for-word transcript of the call that was produced This set in action This set of actions, sorry underscored to me that White House officials understood the gravity of what had transpired in the call other stuff about apparently they're The way they handled the electronic Copy of the phone call so The whistleblower explains concerns about how the White House officials handled the transcripts The whistleblower said it was removed from the normal electronic storage system for transcripts And put in a separate electronic system used normally for only very highly sensitive information So one White House official described this act as an abuse of this electronic system Blah blah blah. You know the story here. So, you know, Trump is being accused Did I mean they released the transcript of the telephone call? But is it the genuine transcript? I mean the one they released? I mean we talked about this yesterday, but the transcript they released showed Trump asking for information About biden, but did not show Trump Threatening to withhold military aid if no information was forthcoming So look, this is this is rolling on Trump one thing to note I was reading this article this morning. It's something I didn't realize Where was it? So I can't find the exact quote in this article now, but it's basically saying that the whistleblower Most of the intelligence that the whistleblower has Is second hand and most of what he's Complaining about he did not witness himself. I'm saying he it might be a she I don't know. It's an anonymous person So basically the whistleblowers laid out all of these complaints, but actually it looks like they didn't witness much of it at all So this forced Trump into a tweet last night A whistleblower with second hand information question mark another fake news story See what was said on the very night. No pressure call another witch hunt So this is classic democrats versus Trump and the election campaigns fired up. I mean this is going to roll on. I still don't think I mean in my view impeachment risk. I just Trump's Trump's got through so many scandals in the last few years This is another one and I just don't think it's going to lead to an impeachment I mean look check out. I don't know check out u.s. Stocks. They don't care. This story is not Of any interest particularly And you know you've seen this week that generally the s&p's kind of been sideways where we're trading right now The same kind of price points we were seeing at the start of the week Yeah, we've had a a couple of ticks lower here on the 24th We had that break but generally it's been quite stable as we're consolidating just below the 3000 handle So from a market point of view, you're not really seeing much reaction to this Trump impeachment saga Um whilst I've got the charts open Let's have a look at gold because gold had a little bit of a move earlier Some of you were looking at this and talking about this So really what this is a good example So, you know what happened here? What's the news? You know what led gold to spike lower and it wasn't a spike It was kind of a You know quite an aggressive move over about a 10 to 15 minute periods I'm talking about this sell-off in the in the red box Um and this is a good example So sometimes price moves and there isn't a fundamental reason behind it and this is definitely one of those What we've got here is a move below and actually I'm going to go back to the one hour chart We've got a a break below a technical level which was set on the 25th of september Wednesday's low which got retested on thursday So you've got a double bottom here if I I talked about this level yesterday in the briefing if we just kind of extend my My rectangle now to encompass the fact that it set the low for yesterday as well So you've got quite a nice double bottom for the week here and the market just broke it this morning And this has taken gold prices down to almost test the 1500 dollar handle The reason for the acceleration in the move lower is just that there's stop orders below these key levels So it's people are long gold And what they're doing is they're setting their sell stop orders just below key technical Support levels and this is a key technical support level and it got broken this morning Triggering these stop orders Then you get stop orders triggered and selling and this stop order selling force Creates the accelerated move to the downside. So we call this a technical breakout And That's the reason for this move and what's happened since is we've had a nice pullback And you know, you should be really looking for that. I mean, let me just get this This this technical line here on the shorter time frame accurate. So Let me zoom back in. So the technical level which was yesterday's lower is now providing a decent short area So 1507 is resistance with looking for a test down at 1500 perhaps if this downward trajectory continues through the morning So a bit of action on gold a bit of that move on cable and it's still making new lows as I speak actually Um, and whilst we're here and talking about cable and I'll bring in the euro as well I mean, obviously cable's been trending lower this week, but so is the euro dollar And actually underlying all of this it's all too easy to always focus on Stirling or focus on the euro. Um, you know this week in Europe. We've had some really bad Economic data. You remember right back at the start of the week What got the downward trend moving was that really bad set of PMI numbers out of Germany and France And so, yeah, the euro's been weak, but actually don't forget about the dollar here and the dollar has been strong Um, and that's been the theme of the last few weeks and I think it comes from that fomc meeting that we had Last week. Yes, they cut rates But I think what we saw was that there was a difference of opinion on the committee And we've been looking here and I know you were talking about this in the room earlier But we're looking here at what are the fed going to do? Um with interest rates at their next few meetings and have a look at these graphics. So This is looking at fed funds futures pricing and from the pricing of these assets were able to effectively compute a probability Of where markets think rates will be at the next meeting. This is looking at the october the 30th meeting So remember rates right now are between 1.75 percent and 2 percent So right now the the futures pricing is giving us a probability of 55.1 percent that rates will remain unchanged And there's a 44 4.9 chance that rates will be cut again in october. Okay, so this has changed Um, you know, it was the case that the probability was in favor of another cut in october So this has swung in the last week But I think what's much more important is the december meeting for me the chances of a october cut I don't think it's going to happen. I don't think it's the fed style They tend to want to cut every other meeting 25 basis points, you know, keep it slow and steady under control So if you like it is the december meeting that's the more likely one anyway and and certainly the stats say that but look Um, and in one 25 basis point cut in the december meeting on the 11th of december is now at a 49.3 percent chance Um, it was a lot higher than this. So the probability of a december cut has dropped Uh, there's also a probability of a double cut So I guess you're taking in october here So the probability of a cut in october and then another cut in december was also dropped But it's still at a decent 18.1 percent something that's gone up is the probability of no cut So I guess what i'm saying here is the probabilities of rate cuts have shifted down Which has just Fed into a little bit of dollar strength over the course of this week And that dollar strength has been exaggerated because you've had particularly when you're looking at the euro and the pound You know, you've had two weak currencies there. So the euro's been weak because of european data the pound's been weak obviously because of the escalating brexit risks and uncertainties and put that against a strong dollar and then that makes for Pretty decent moves in exchange rates. So you know over the course of this week, you know euro dollars gone You know i'll put 111 or even 112 handle down to below 110 So, you know decent kind of 200 pip trend to the downside For euro dollar and cable You know, it's been much more dramatic. We were trading up at 126 At the start of this week or end of last week at least and here we are trading at 123 So we've had a 300 pip move to the downside here for cable. So definitely strong moves But you know, don't forget the dollar in all of this It's all too easy to just focus on the pound and brexit just focus on the euro and European data. Don't forget about the dollar Okay, a couple of other things just to wrap up Um, I caught a story in the ft that I wanted to put on the table Not for now immediately but for a quarter four and maybe going into next year Um, eastern europe currencies take strain from manufacturing and mortgages. So This bad data in europe is very bad news for eastern europe who are very dependent on the core big european economies such as germany So i'm talking particularly here about poland and hungary Their economies are very dependent on germany germany's economy. We think may be in a recession And as of yet germany's government Are not rolling out any stimulative Fiscal policies. So you're definitely seeing the german Economic weakness bites hard in poland and hungary. This has led to the polish and the hungarian currencies devaluing now there's a big problem that's hidden under the carpet in these two countries After the crisis in these two countries People buying houses Suddenly were offered this amazing deal from swiss banks And they were offered swiss frank Denominated mortgages at interest rates that were way lower than the interest rates They would be they were offering in in in mortgages in their own from their own banks in their own domestic currencies Okay, so the problem with this is if their currencies devalue or their swiss frank Denominated mortgages Those mortgages get get larger the interest payments for those mortgages increase And this becomes a massive problem for consumers who have who have these mortgages This came to a head in hungary believe it or not two-thirds of all mortgages are swiss frank denominated and hungary basically Forced well the banks in hungary were forced into switching The swiss frank denominated mortgages into the hungarian forrant at huge losses basically the government forced the banks into Redenominating these mortgages at an exchange rate that was way off what markets were trading And hungarian banks took a massive hit. Okay now in poland This hasn't happened yet In poland, which is a bigger economy a similar kind of size number of mortgages that are swiss frank related And you got this scenario where now polish banks are very scared That they're going to get forced into this revaluation and have to take a massive write down And of course consumers are saying these mortgages were miss sold They were miss sold these mortgages. They were not told about the exchange rate risks That they were taking you know outside of their knowledge And so it looks like another banking scandal That's ready to rear its head and you might find if the european economic weakness story continues And these eastern european currencies continue to devalue and you know the foreign to a record ever low by the way Then you know you might find this story flare up and we might get some european banking risk Rearing its head over in eastern europe. So just a story to put on your tables To keep an eye on in the months to come Let's finish by looking at the data calendar for today and Looks to be quite a lot on it except for we've gone through some of these numbers from earlier this morning With regards to stuff like german import prices that were negative, but yeah, just slightly Worse than expected you would describe them. We had french cpi numbers that were swapped slightly lower than expected So, you know certainly helping with that sort of euro weakness theme that we've seen this week But other than that we've got an economic sentiment number at a europe at 10 a.m It's not a particularly tier one release that so i'm not that interested Mostly the this afternoon. We've got core pce data From the us which is important. This is inflation related data We've just been talking about the probabilities of the fed hiking rates. Sorry not hiking cutting rates And you know it's this type of inflation data that certainly the fed will be monitoring closely Although i would put a caveat on this this data is for august and here we are almost at the end of september So it's not one of the head, you know, we're in a couple of weeks time We're going to get september cpi data. That's much more important than this inflation data that we're going to get today But nevertheless, it's inflation data. So we're going to be monitoring it and seeing if it has any kind of impact We've also got durable goods orders and then michigan sentiments. So this is consumer sentiment data at three o'clock But it's be aware. This is the final reading for september the university of michigan released two readings per month And it's normally the preliminary reading that's released two thirds of the way through the month But it's the more market sensitive this final reading is like an updated revised version of that preliminary reading You don't often get too much change from the preliminary and therefore this number is less market sensitive We've already had the bank of england saunders Release his text and and he's the reason why it moved the market is because saunders is normally hawkish But of course one of his comments at least was dovish Um, and that's what kind of got sterling moving to the downside there Other guys talking 915. We've got the gwindos dovish speaker from the ecb you got feds quarrels and Harker and then your ecbs vaidman at some point which might be a little bit more interesting given that lauten schlager The current ecb german representatives stepped down and resigned this week. So vaidman's comment who was another german representative on the ecb I mean his comments might be a little bit more interesting given that development earlier in the week Okay, so that's the situation stocks are pretty steady here this morning The pound's under pressure the gold's had a technical breakout to the downside That's the dax has just sneaked a new high So that's the flavor of things here as we get the session underway. So enjoy the rest of the day. Enjoy your weekends. Thanks very much