Trading: Understanding fundamentals - March 2017

I know it's a Thursday night and I'm sure many of you would typically be doing much more exciting things than probably listening to me but I appreciate you taking your time out of your day and hopefully we can pick up or at least cover a few topics today normally these are the sorts of things that I would talk about over everyday to a lot of our traders in house but what I'm going to try and do is give you a bit of a snapshot at least of some of the global kind of macro things that are going on at the moment because as you well know pulp politics is very much meant that financial news is very much come back to the forefront of what is the kind of underlying driver of these financial markets whether that be brexit Donald Trump and the presidency and his administration now and what they can cannot do the timelines surrounding that you've had the Dutch vote of course when we going to touch upon that and you've got the French elections upcoming potential for still disturbances in the Italian economy and then you've got these German federal elections as well at the latter part of the year so very much so and certainly more than I've ever seen having been involved in the markets for over 10 years I've never really seen politics have such a defining impact on market prices so actually the beauty is of you know trading or being involved in the markets is that you're constantly having to learn kind of new things which obviously keeps it very interesting all of the time before we get underway I guess just a quick summary of who I am because majority of you probably won't have met me before so my name is Anthony and I started in the financial markets back in the summer or just before the summer of 2006 I was just upon a year or so upon graduation from University my brother my older brother was a trader at the time so I had had kind of a soft introduction to financial markets ever since I was really quite young meeting traders and so on and so forth of fire him then he actually asked me to come and work at the time on his desk that he was running which was an analyst desk basically servicing intraday prop traders we would comment on a microphone just like this and our job was essentially to take a lot of the legwork out of a traders day my job then was to go through and prepare traders from 6:00 in the morning till 6:00 in the evening her at the time not allowed to leave my desk unless appropriately covered but my job to go over things like the economic calendar of scheduled events data coming out central bank speakers government bond auctions corporate earnings things like that and then actually a lot of the job was about trying to capture breaking news when it came out and then relaying that to traders via the audio format which was always the fastest to try and give them a news speed edge or an advantage the key being then that either that create the opportunity to trade or it could help in order to act as a safety net for traders in order to preserve capital maybe they might be in a position and a big piece of breaking news fundamental news is big enough that they've got to exit that pronto in order to to make sure that any loss is minimized so it's kind of a two-fold thing the whole point though was that as you guys as traders probably all know is that trading is such a psychological burden doing this aggregation of news which has got ever more I would say difficult given the advent of technology and things like Twitter and news being 24 hours is that it takes someone like me to help kind of take the burden of that in order for you to just concentrate on your strategies and executing those effectively so that's kind of my role and what I've done obviously I've done that for well the best part of about eleven years I ended up running a desk where I did the UK European US and Asia to eventually then running the whole kind of 24-hour desk before I then left that firm and joined amplified trading about a year and a half ago will and peers the two co-founders I met actually probably about eight years ago when they were prop traders at a US firm called Goldenberg hey Meier they used to listen to then our coverage so hopefully that gives you a bit of background about Who I am I trade from time to time but it's not my I'm you know my my skill set and my experiences I served 10 years as an analyst so that's very much where my strengths lies and actually what you'll find is that when you want to be able to understand then and and search and try to get this news advantage from fundamental events actually that's a full-time fully engaged job in itself and so actually me working alongside people like William Pierce gives us a very strong advantage I do when I'm best at and it committed to that 100% and then they do what they're best at and we you know we kind of assist each other in that fashion ok so before I really get underway a quick look as well up the charts that I that I'm looking at this is just one of basically several screens that I've got on my desk you might be able to see just some of them in the corner of the camera shop but essentially I've got a microphone and my job then is I'm looking at I'm listening to the squawk that we use which is part of the trading live platform so they're watching all of the major news wires stating news when they see it I'm then layering in analysis to help trainees basically get a better understanding of the news that they're hearing ultimate goal for them to be able to predict themselves to make tradable actions I'm also monitoring things like Twitter we're not going to talk about that tonight but maybe that could be another session we'll do in due course where I talk about how I use Twitter very effectively in order to almost create my own terminal news feed which can be highly useful and effective if used the right way I then look at other things monitoring different global prices across different indices to keep an eye on different things from single stocks then various other news feeds like the headline news feed as well on trading live and thence these are some of the charts that I look at as well so the charts that I've got in front of me here I've got euro cable top left Gold top right backs SMP futures in the middle WTI crude in the bottom and then on the bottom right the US 10-year and obviously we had a really big event last night which was the Fed and before we get into the crux the fundamentals this was a really interesting day I think for our traders internally some of the newer traders who have just trading for the first time live funds because what you had is a really big event in the Fed it would've been very much hyped up the Fed we're gonna hike interest rates but it was a very key event for the feds because it wasn't just about the interest rates it was also about the summary of economic projections or otherwise known as the dot plot matrix which is their forecast for future median kind of points of where rates will be by the end of specific years 20 17 18 19 and beyond so we can see how aggressive the Fed would be in raising interest rates and then we also had the press conference with Janet Yellen as well as the statement as well from the Fed so it was a multi-faceted event of which was overall perceived to be a dovish hike and we'll talk about that in a second but what that led to was the dollar fell sharply we saw US yields fall sharply so things like the US 10-year government bonds rose on the back of the Fed that the the fact that the Fed are going to be less aggressive with their hiking of rates than the market was positioned equities rallied because the market foresees then that of them as a assign if you like that the rates being lower for longer or at least a slower rate of normalization of Fed policy has been a net benefit to US equities hence we're trading up around close to these record highs and then both major pairs in terms of cable unlucky here shot higher same with euro dollar on the same time frames as the dollar weakens so that was the the initial reaction but it was interesting from a psychological point of view from the traders the newer traders here was that you know trading the event itself for a new guy would have been very difficult and I'm gonna tell it how it is trading the news I would say is a much more advanced technique of trading the financial markets if you're trading intraday on very short timeframes because what you need is to be able to make decisions in a very tight short timeframe with strong conviction in order to get in on a trade at a good entry point and to do that you've obviously got to have a very deep and lateral knowledge of the financial markets and global affairs current affairs political affairs of what's going on so when you hear something you immediately know the impact that it can have on the market and in all honesty that comes with time spent in front of the screens and it comes from immersing yourself in the issue and being aware of what all the drivers are what our individual central banks looking at what is the global news that's going on at that point in time so the interesting thing that happened with the traders is that they came in obviously you've had a really big move overnight or in the evening they actually stayed to trade that but then they look at the charts you had such a big move they think as well that you come in you've got Dutch elections the papers are talking about the Fed the fact that there's a surprise that the Liberal Party the current prime minister is fared very well in the elections in the Netherlands that means the populist movement might be dying out and they're therefore they come in with the mindset that they think that market is going to start moving quite highly volatile or continue that kind of size of price action and actually the reverse happens and when you think about it if you look at the week in its entirety you start off the beginning of the week on Monday and Tuesday now if I was a bigger institutional investor which inherently is where the volume comes from then there's there's no way I'm going to really put any sizable money into action on Monday and Tuesday ahead of what is a largely a risk event a large one with the Federal Reserve meeting on the Wednesday there for Monday and Tuesday typically was for quite quiet then you get to Wednesday not only have you got the Fed but you've also got the one second not only have you got the Fed but you've also got the Dutch elections so it's kind of a capitulation of big things happening all at once the market goes into high volatility and then soon as that event passes it's kind of like a quiet before the storm the storm hits and then it goes quiet again so I think what the guys would have learned today or the newer guys at least is that actually the day after a big event quite quite often what you see is the market gets kind of a sigh of relief I kind of breath an intake of right let's just reassess things as we go and obviously when people were looking at the Fed they kind of thought well actually the Fed have only done what they said they were going to do they've repriced expectations in the weeks through fed communication as to what they wanted to do which was hike 25 basis points they did that and then they also kept projections unchanged it was the market that got ahead of itself and thought well they've been so hawkish not only they're gonna hike they were also gonna get more aggressive with the hikes thereafter the Fed actually never really said that they were just talking really about March and so actually they're just following path and they've they've just continued on course so to speak so today's been actually a very quiet day in the markets after the big moves we had yesterday and an issue interesting one in how to kind of just reevaluate and look objectively each day for what it is and try not to dwell too much on the bigger events that happen before but let's move on and let's talk about some of the some of the slides I want to show you this evening and as I said at the beginning if there's any questions just note them down and then hopefully at the end when I finished going through for the next kind of 45 minutes or so or half an hour and then we then I can try and address those the best that I can so first of all let's take a look at technical and fundamental now often I have the you know the luxury or the privilege in some respect to meeting a lot of people some experienced through when I kind of you know the service I was delivering on the desk that I ran previously majority of those people were full-time prop trading floors hedge funds desks investment banks so these were guys who were very much in tune with the market full time professionals some highly experienced of you know multiple decades some of them but since joining amplify I've really got to meet people who are who are new to joining the market and what surprised me and and in a way maybe not so surprising is that people who are new tend to focus very much on the left-hand side of the two circles that we're looking at which is the technical side now the reason why I've got both let's get one thing straight right from the start both are equally important now you will have probably as a trader an inherent bias of where you find the most comfort ie looking at different technical studies or having a stronger fundamental view on the market the one thing is is that both in my opinion need to be understood and appreciated in order to trade these financial markets successfully particularly in an era where there's a lot of political events that are driving the market and being able to understand those better surely gives you a better preparation for how to tackle these events as they come up so even though my background is I understand and I apply basic technical strategies of course but I'm a heavily influenced and led by the fundamental side I apply both I think about it most simply as when I come in and I view the markets and I interpret the news that's happened that gives me a fundamental direction as to where I think the assets that I'm looking at so multi across assets what direction I think that they all go if there's a bit of breaking news let's say about brexit and it's something negative and there's some other things going on let's say there's negative brexit news but there's positive hawkish comments from the Fed that should be stronger dollar and weaker pound so cable direction wise from my fundamental view in its most simple form I should say should be going lower however that only gives me a view of direction in order to execute that fundamental view I must use technical analysis because there's no point me just jumping in on a trade and sacrificing a good entry to execute that idea I must know technically to find the most viable point of entry and exit that's a really important thing so hopefully that's you know we would go into this amplify with our trainings in a lot more detail but hopefully that what I want to emphasize here is I think if you're too heavy one way or the other it will be to your detriment if I don't apply the technicals then I'm never going to really execute trades to foresee my fundamental strategies come to fruition on the opposite side if I rely too heavily on technicals inherently what will happen at one point in time is that a big piece of breaking unscheduled fundamental news will come out and will carry you out of that trade instantly sometimes I'm sure a lot of you who aren't as fortunate enough to have things like a squawk or services of that nature you might see a massive spike in a price that you're looking at and wonder why did that happen well you know it's safeguarding and planning you can learn to avert times of volatility and minimize then the kind of things that could make your strategy or your trade go wrong so both need to work in harmony and that's a really important point but the important thing about fundamentals is a it can give you a better understanding of why the market is moving in the way that it is both short and long term but be understand that if you're going to be trading instantaneous ECB comment here or Saudi Arabian comment there than speed is of the essence and inherently having trading fast in that type of fashion required is a is a high-risk strategy and so being high-risk you're better served when you're more experienced about to deal with that to a execute in the right way with the right appropriate risk management techniques and so you're not too exposed now one thing I always point out with this slide is that these these are a couple of themes at the moment now there are I could have put literally about 25 different pictures here but I've just chosen a couple one China so for you guys who've traded the markets for a little while if you remember back at the beginning of last year 2016 that was the only subject the market would talk about fears of a hard landing in China which obviously contributes to a phenomenal amount of the economic demand in terms of metals commodities overall global economic growth Janet Yellen head of the central bank of the largest economy in the world the u.s. brexit or the EU referendum and then the most recent big driver of financial markets the infamous Donald Trump so these are all key themes now if I was to look at some other additions you would probably put marine lepen the National Front leader who potentially has a possibility of becoming the next French presidential candidate you also had Gert velders the head of the freedom party in the Netherlands which was the far-right party what you have here are multiple different fundamental events or macro events that are always going on other things I could put in here for those who have traded long enough you remember Italian banks which were suffering hugely back in the end kind of q3 q4 of last year Italian banks were getting a hard run capital raising from the likes of Monti passkey and so on and so forth but if you look at the papers now you'd be remiss to think well italy's fine but italy's not fine the banks are still having to raise capital and they're still having to consolidate in order to protect themselves and the italian banking situation think about deutsche bank do you remember deutsche bank when they drop below ten euros back in I think it was September you know they've bounced a very nice percentage amount if you manage to get in at that low point but you can see the point I'm making that there's always multiple fundamental events that are ongoing at any given one time something like Greece for example fiscally Greece is in as bad a shape as it was when it first got originally bailed out the very first time a number of years ago the only thing is is that these financial markets although they are talking about Greece again now because they have big debt redemptions coming up in the summer the bigger driver is Trump or has been the bigger driver will soon become that of brexit then the French elections and so what tends to happen is you have a hierarchy of what is the fundamentally main driver of market direction and arguably the big one has been ever since November really Donald Trump his plans of a wide-scale stimulus and fiscal policy have led to a huge move in US equity markets well let me just bring up a chart and I think I've still got it marked up from when I was doing a conversation not so long ago with a few guys so let me just bring up a picture of the Dow Jones and I'll put it on a daily continuation Sharpe so here you're looking at the Dow now each candlestick represents a day and what we're looking at here is this was the election and obviously the election night was very interesting because you had for a fleeting moment that kind of classic risk on interpretation of Trump winning gold went bid flights equality Trump has won the unexpected as a brexit part two equities got hit that's thats big wick to the downside but then the unexpected happened and that was the market started to focus on the fiscal element that trump would mean for the for the US economy and that was heavy stimulus for the US economy that would give it a strong shot in the arm what that meant then is the equities continued to move higher this in combination with lots of different elements but to name one or two things like the watering down of financial regulations has seen the bank stocks rally a phenomenal amount names like Goldman Sachs up in excess of 35% you know lowering things like pharmaceuticals they took they've been highly volatile energy names on the back of lowering the needs and the licensing agreements for expiration firms the pushing of US output making energy firms in that sector more profitable all on the back of promises from Trump market had gone higher got to 19,000 and it was 64 days that's that first box I've got marked up here 64 days for the dowel to go from 19,000 to 20,000 and then 35 days to go from 20,000 to 21,000 granted the higher we go obviously proportionately that actually the smaller the move is but what I'm saying is this market has gone up a phenomenal amount if I actually just mark it up percentage-wise from the low on the night of the election to where we are just this very day the Dow is up over 20% this is all on a promise that Trump will deliver now will he deliver yet to be seen obviously the market is expecting a lot implementation risk going forward through the back end of neck this year and in certainly into 2018 the market will want to be seeing some kind of action and carry your follow through from what he said he was going to do obviously a slower rate of normalization from the Fed would also help keep this equity market on the front foot as well but okay just going back to the slides then let's move on understanding their fundamental news I define as breaking up into two distinct different categories and it's quite simply scheduled events and unscheduled scheduled is one of the beauties of trading live is that every day the day before gets released a daily economic calendar there's a live calendar feed but also there's a daily calendar like a PDF and what that allows you to do is plan ahead accordingly of what's going to come out for the day ahead now as a trader I strongly suggest that really at the beginning of the week you should look ahead really on Sunday if I'm honest but Monday morning first thing for the whole week see where there are the key potential catalysts for the main market moves of that week so if I was thinking about this week I'd think about on Wednesday that was where the hump if you like of where most of my allocation of where the trades would likely go because on Wednesday you had us CPI the inflation readings which are very important you also had Empire manufacturing you also had US retail sales all on that afternoon you then had the FOMC meeting in the evening and then the results of the Dutch election coming out that evening so if I was looking at the week as a whole I know exactly where I kind of want to aim my ammunition the worst thing I think you can do is get caught up with a wither market that's not really moving too much mainly out of sheer boredom I guess and a lot of it and because when you intraday trade a lot of this is getting used to being patient and having discipline and in allocating it your your optimum state if you like both emotionally psychology wise to perform at that point in time where you can plan so that's the scheduled side the unscheduled is when something just happens now the most clean-cut example I can give you is a terrorist attack and now I don't want to dwell on it as a subject but that's when even if you had the most solid technical level of support let's say in the Dow if two planes fly into the World Trade Center like they did that level is default because the fundamental has just outweighed the technical in that respect that would be the most extreme scenario that I can kind of think of but unscheduled inherently causes an instant bigger move in the market if you think about it the market moves because of the people that trade it humans and understanding human behavior is a real key element of understanding actual day to day market movement as well as the technicals and the fundamentals understanding what the herd is thinking because let's not face it even for me I might be experienced but I'm just one guy I make very little difference as an individual we're trading the market what does make a difference is me understanding what other people are probably positioning for and how they're interpreting the market because then I'll be able to better read where I think how how markets might behave so in an unscheduled event if you think about it as a human how do you react when someone gives you a piece of information by surprise you know think of it I don't want to be morbid but think of it as if someone had a terminal disease and you saw your doctor and he told you early on and he said you have five years to live over that period then you can manage yourself and your family to get used to the fact that eventually one day you won't be there and when it actually happens the reaction emotionally by your family is managed and contained if you just turned around one day and you're working out in the gym and you collapse and have a heart attack the emotional response is much stronger and that's when I think about the way of unscheduled news you're not prepared for it therefore the instant reaction is different and you often see that play out in the market something that is surprising unexpected tends to create a larger knee-jerk reaction because assets then need to be plot we price in a quick volatile fashion if that makes sense so that's how I define the two different things to then determine the kind of size of impact that fundamental events might have okay so a couple of subjects I want to talk to you guys about and these are hopefully or give you a bit of a better insight to the kind of overall view that the consensus is how the market is kind of looking at certain things at the moment we're going to talk about brexit we're going to talk about the Dutch French elections as well and we'll have a quick chat about the Fed so first of all obviously brexit has now become almost a reality you've had the Royal Assent the Queen's kind of signed it off after the House of Lords went back and forth with the Commons about two amendments one about EU citizens what should happen to them and then also about a an agreement that Parliament should have a say on or final say in the deal of brexit a meaningful vote I think they were referring it to and they both got turned down in the Commons now I won't go too much into that but things like understanding the the process of how all the House of Commons has a vote where the government has a majority but then the Lords which is the upper house of UK Parliament is unelected they can actually make amendments which then go back to the lower house to then basically they can veto that and then that pushes through the House of Lords because they very rarely don't go back to do the same things twice so that's kind of done article 50 is going to be triggered now the timing really again this is when you try to factor in and understand fundamental news so there's a couple things coming up you've had this election you've had the Fed then you've got the couple of different events force coming in terms of data then at the end of the month you have the 60th anniversary of the EU treaty which is happening in Rome and so then actually Parliament goes into recess in terms of the UK what this means then is that you can actually define the time that you think that the that Britain or the government will trigger article 50 you can define that to basically the 27th to the 30th of March because what the government will not want to do is trigger it on the day of a European celebration that would be like pouring salt in the wound going into negotiating that's just self-inflicting for the UK government so when that actually happens an article 50 gets triggered actually it's going to have a minimal to no effect what is going to be important is there's the EU summits happening on the 6th of April is a Eurogroup meeting on the 7th of April these will all be very important as a timeline going forward one second well I just turn the light back on so what we're looking at here are a couple of slides and I'm gonna talk I'm gonna give you a bit of an overview of what what the UK economy looks like at the moment and so let's start off with inflation now inflation is probably the key metric in which the Bank of England are looking at at the moment it's fears of inflation that have seen this today this very day they've seen actually the Bank of England voted 8:1 expected was for unanimous nine nil but they voted 8:1 and so one member Christine Forbes who's the most hawkish member of the Bank of England she's actually due to finish in June she said actually I think we should raise rates right now to counter this impending move higher in inflation let me just bring up a chart for you okay this bigger chart that I've got here this is cable today and this is when when you're looking at fundamental events you've got to understand what is it that the market is expecting no one is expecting the Bank of England or earlier today to move interest rates right now no one's expecting QE to be extended right now well they are expecting potentially is a rate rise further in the future so by default today you get the decision on the rights decision on QE or a asset purchase that purchase facility the APF and then you also get the vote split and then you get the minutes now the moves that occurred was a very strong appreciation of the pound against the dollar which was this candle here immediately shot higher I was pretty much a full point move that we had to the upside what happened there was that one person voted to hike immediately that being Christine Forbes who I just mentioned now whether or not that carries much credence from longer-term economic perspective of what they're going to do can be questioned the fact is she is due to conclude her position in the summer and be replaced but nonetheless the market wasn't prepared for that kind of split and therefore it meant that had a hawkish connotation and cable shot higher obviously this is this is adding on to the FOMC inspired move where the dollar weakened and so by the dollar weakening and sterling not doing anything cable was moving higher as a byproduct see about two big moves higher in in the space of about 24 hours in in the case of cable but looking at the UK economy a couple of interesting things first of all on the left here and this is UK inflation the purple line signifies the Bank of England's target now like many central banks they have a mandate one of the key ones for the Bank of England is called price stability that means that their objective is to keep inflation at 2% that's the optimum level for the economy to grow what's happened here is the white line you can see is that inflation is starting to pick up back towards target the dotted blue line is what economists forecast for it the trajectory of inflation going forward through August 2017 June 2018 so inflation is moving higher in this is in large part because of the sharp depreciation of the pound post brexit relation occurring is a ragged effect from that steep fall that we saw on the back of the EU referendum last summer what's happening now is that prices are even according to the Bank of England in their latest quarterly inflation report they're expecting inflation to peak at 2.8 percent in about a year's time so another percent above where it is at the moment now Mark Carney's already started to communicate to the market that he has a tolerance for higher inflation at least in the short term what he's saying then is he wants to manage the markets expectation even now inflation is gonna go above their target which would traditionally be countered by moving interest rates higher he's saying we don't need to as a one-off kind of sharp move lower on the e referendum and eventually the higher inflation rate will start to Peter off into a point where it doesn't get out of control obviously there's a risk with that like there is with any forward guidance so what does higher inflation in the UK mean well higher inflation means these other examples here so if we move to the right-hand side this is UK regular pay on a three-month average now if you divided a line down this chart and cut it in half you've got pre-financial crisis post financial crisis so people essentially wage growth was much more healthier before the financial crisis we have recovered off the lows that were seen in 2013-14 but we are still tracking approximately half the wage growth that we were used to seeing before the kind of collapse of LeMans and the subprime crisis if we move lower then what does it mean people are getting paid less than they were before and the prices of goods are going up that results then quite naturally in UK consumers are spending less as inflation goes up the more expensive things get inflation is moving up but the wages we're earning are not moving as fast therefore my purchasing power is diminished what do I do when that happens consumers stop spending now you stop spending UK consumers are spending less actually you've had three consecutive months and at the end of the year last year you had the biggest fall in UK retail sales since 2011 and let's not forget the proportionate makeup of GDP in the UK we are a heavily service based economy the days of Royal Britannia manufacturing powerhouse they are long forgotten what drives this economy is the service industry by pretty much 75% as a rough estimate the other proportions of manufacturing construction so on our marginal so if the consumer stops spending that has a negative connotation then for the performance of corporate Britain and the performance of the UK economy the bottom right then you start applying this inflation squeeze on spending and as you can see here more recently things like manufacturing construction and services have started to tail off as inflation has started to bite so when people talk about today I'm sure you've probably seen it the footsie 100 is hit yet another record high but when you start looking scratching beneath the surface and to start looking at the underlying health of the economy signs are not looking good admit the screws tightening on inflation and price pressures so don't forget you have to layer in the fact that we've also got something called brexit to deal with as well and we'll get onto that in a minute this is then leads us to the question what will the Bank of England do the things I've just discussed show that underlying on many different metrics the UK economy is beginning to struggle and should deteriorate under inflation the problem is higher inflation if it starts to run away needs to be countered by higher interest rates doing things like extending QE further in Britain might be good for the fragile economy but increases the money supply in the system that then fuels inflation further as the pound would likely depreciate even more so you can see the rock and a hard place at the Bank of England therein when it comes to rate expectations though runaway inflation will just cause ultimately an economic catastrophe so the Bank of England are mindful of monitoring it as then by default our market participants or traders people aren't talking about rate cuts anymore if I think back to the summer of last year when the Bank of England cut rates for the first time in several years back down to zero point or to 0.25 percent May we started the QE presses they committed themselves at that time to maybe cutting rates lower the situation has changed starkly under inflation now people are talking about one of the Bank of England gonna hike rates and this is where this 8:1 came in today with Christine Forbes in her opinion we should be doing it now I would say she is an outlier at the moment but if inflation keeps going higher that 8:1 balance might soon start to turn into 72-63 and so on in terms of market probability which is basically calculated by short-term interest rates we can factor in when the next Bank of England hike may happen and if I look at where we are right now is on the farthest right-hand side of this chart essentially the market is pricing in the probabilities of a hike well this is the probabilities of a hike as of today by the December meeting so the last meeting of this year which is when the inflation should be up at around the upper bounds of where it's going to go according to the Bank of England the markets are signing roughly a 20 percent probability that the Bank of England's by December so still we're not expecting one this year but as you can see is quite it has acquired a high degree of movement at the beginning of year when people were really fretting over the price pressures in Britain they actually got up to a point where it was priced in above 50% is priced in we're gonna have a hike by December so these are things that can influence the pound these fluctuations in expectations one thing then we talked just now about Christine Forbes and well this - this graphic actually has Charlotte Hogg which you'll you'll know if you've read the news has now resigned I think she lasted about four weeks before resigning because she failed to disclose her brother our brother works at Barclays in a fairly senior position and for someone who sets the policy monetary policy highly influential an important position this is this is a she should have disclosed that hence that she's gone so you can kind of scrap her if you like Christine Forbes she is the most hawkish so by knowing who's the most hawkish ie Forbes in McCafferty in the case of the Bank of England and by knowing who's the most dovish ie fleiger and Andrew Haldane on the left hand side then what I can determine is when each of these individuals speak I should know what they should say and type of tone that they will say about the economy and monetary policy someone like Christine Forbes will be say I'm really I'm really concerned about high inflation I think we need to rate raise rates now to get ahead of the curve whereas someone like fleiger and Haldane will say there's a lot of risk with European politics which could be to the detriment we're going through a period of political uncertainty with triggering of article 50 we should keep a low interest rate environment we should continue to stimulate the economy therefore I can define by what comments in advance that they should make when I know there's a scheduled speech therefore if someone like Haldane or fleiger was to say I think wishes height hike rates to counter inflation that would be a huge deal for the pound and is an intraday trade it would cause a dramatic repricing because the person who's most left or dovish leaning has turned completely the other way and if they've turned everyone else would have done so because they're the most leaning of that spectrum of monetary policy so hopefully that makes a bit more sense the brexit timeline this is probably something which you may have asked obviously we're going to go into the trimming of article 50 at the end of the month so where do we go from go from from here this is a really excellent graphic that I thought I'd quickly run through and it'll give you a bit of a bit of a better idea and so what you've got here is two-year negotiation period once article 50 of triggered for those of you who know the lisbon treaty and that specific article basically once you punch the stopcock ie trigger article 50 you've got two years two years to do a deal and then you're out no matter what happens that's currently the the legality of the situation now in reality it's likely to be much different now going through first before we go into the nitty-gritty the first one to three months is likely to be preparation time so you've got the Dutch elections which have happened yesterday April May you get the French elections so obviously Europe's going to be almost sidetracked by those events going on then you go into September you've got the German federal elections you've also got question mark not scheduled but potential Italian elections and there's that takes us out then from the triggering in March six to eight months the EU is first of all you've got three months or one to three months of preparation six to eight months the EU wants to deal with the divorce arrangements first by this what it means is that basically and you've probably read this in the press as well Europe have basically said they want to be paid 60 billion euros of kind of unpaid services that you'd signed up for before we even start talking about about trade deals obviously that number will probably come down considerably but that's the first kind of pillar to post negotiation at its most widest apart but like with any divorce you have to settle and there are responsibilities of which the EU or Britain has had to the EU to be part of that membership that they need to pay in order to live and so Europe have got a pretty strong starting ground because they could basically draw that out in order to reduced the negotiating time because at the end of the day once it ends it ends so 10 to 11 months down the line so we're looking for a year from now pretty much the beginning of 2018 negotiations on future deal between the UK and Europe that's when it gets underway so as well as I've got written here once the UK has initiated the two-year exit process it is likely to take until the European Council meeting at the end of June before negotiations properly kickoff four to five months after that then you're looking at well this is actually looking at a cumulative time scale so this is going way into 2018 then four to five months the deal needs to be ratified now this is really important because actually you've got this period in the beginning where we need to settle the outstanding amounts due then we're going to trade talks but actually that's a very small window because they need at least four to five months to get ratified across everyone after twenty seven individual EU states has to also agree to the deal that they've done with Britain likelihood is that's going to be extremely difficult actually what's probably likely to happen here is that the UK is more keen on parallel approach whereby the debate on UK's exit bill takes place at the same time as the discussion on a future arrangement most lawyers most economists most analysts most traders believe though that this deal cannot be done to conclusion in the time frame then we've just discussed which is two years what will likely happen is that they will have some kind of structured framework deal but then they will also have a layover period of probably several more years until we get a definitive exit package so actually you're looking at about a transitional period beyond the two year stopping point of the legal Lisbon Treaty before then we start to go on so actually knowing what brexit is we're not going to know for an extremely long time it is the crux of it but trading the pound I would say is going to be important in terms of probably the triggering of article 50 will have a minimal reaction that's very much expected on the time frame or the timelines by the government they've been very transparent with that but it's the beginning of April when things really start to get interesting if marine lepen wins obviously the negotiating weight or clout probably moves to Britain if you read the papers this morning marine lepen has been giving the backing to britain and that if she wins she would help them and a system in the process of getting a better deal because obviously she's very much of the mind of being anti Europe and wanting to call a referendum of her own so that's that situation okay I am mindful that I am over that I am over running at the moment can you guys just let me know whether you're okay for me to continue there's quite a few other slides I'd like to discuss I can shorten the session or I can just continue going give me a heads up in the chat let me know what you prefer happy to to do either way okay Robert thank you okay I'll continue so what I'm looking at here now is the the Fed dot plot I'm not going to talk about the Fed too much we have discussed that already but this is one of the questions which I had several times yesterday for the newer guys well as what is the dot plot they didn't quite understand what it was and if I was to show you well let me just see if I can bring it up for you what it actually the summary of economic projections looks like which the Fed releases and actually I'll probably make a bit more sense of what you're looking at so let me bring this over okay so this is the actual so with the Fed yesterday you have the right decision you have the statement you have the summary of economic projections which is what you guys are looking at right now on my screen and then you also have the press conference with Janet Yellen now this was the chief reason and ween there were other things there was a very there was a dissenter Kashkari of the minneapolis central bank or Federal Bank in the the US and voted against the rest of the group and actually wanted rates he was extremely dovish on hold for the foreseeable future but what really moved the market was this what you're looking at here is every quarter so the Fed basically have eight meetings per year four of which are very historically important because they include these these projections get updated and also a press conference in Janet Yellen now central banks if they are to change or deviate from their policy path like to make the change when there's a economic projections coming out and the ability for the chairwoman or chairman as in Yellen in the cases of Fed to be able to talk to the market to alleviate concerns of a pending policy change so that being March June September and December it's the same with some of the other central banks but the Fed that's this specific timeline what you're looking at here is changes to their forecast for the year 2017 2018 2019 and then longer-run key metrics then that are measured by the Fed our GDP unemployment rate PCE inflation all of these though lead to one key thing that the market looks at and that is what is the projected appropriate policy path you can see that down at the bottom and this here is the federal funds rate so the federal funds rate in other words is the interest rate in the u.s. which we saw hiked by 25 basis points yesterday or 0.25 percent now what you have is the previous projections along the bottom here one point four two point one two point nine three percent this was the December projections remember these are quarterly and then this is March these are the current ones one point four two point one three and three percent now because the Fed had been so hawkish what the market was expecting was actually they would hike and what you'd get is what they call a hawkish hike what that means then is the Fed hike and they also increase these numbers ie the median of all of the Fed members move slightly higher to a point where more interest rates are going to go up in the future what happened in reality yesterday is that the markets jumped on these numbers because as you can see December to March change there was absolutely nothing in 2017 there was no change in 2018 there was a very minor point one change higher in 2019 but there was no change in the longer run what the market was expecting actually was 2018 and 2019 to be revised higher as to the longer run and potentially 2017 to be revised higher actually that was definitely not the case and a Fed then actually delivered a hike but a dovish hike by the right trajectory was more shallow they stuck to their existing forecasts rather than being more aggressive so what that looks like then from a dot plot projection point of view is like this now each specific dot circle is an individual Federal Reserve central banker so each one defines one person's opinion at one of the cent federal central banks like San Francisco New York so on where they see interest rates at the end of that year some like this one dot here which most likely is Kashkari or particularly dovish ie through 2017 1819 he sees rates actually the same as they are all the way through that period whereas right at the top you've got someone up here who's super hawkish who actually sees interest rates by 20 while 2019 seized him a-knockin 4% Kashkari or the most dovish member sees them down a sub 1% now what this is when you look at all of the dots it gives you a median forecast when you calculate it now the median is defined by the bold the bolded dots that you can see so as you can see they're at exactly the same level for 2017 exactly the same level for 2018 and this is when you've got that minor point one blip higher from for 2019 longer run is the same so overall if you were to join draw a line here the trajectory is pretty much identical the market was looking for yesterday was the GG to go up quite sharply which would have seen the dollar appreciate which would have seen yields appreciate but because the market was positioned for that to happen and I much more shallow trajectory happened or forecast the market had to reposition itself aggressive aggressively hence the reason the dollar spiked lower euro dollar cable spite higher as a byproduct of that dollar weakness yield spiked lower T notes rallied gold rally and so on and so forth so hopefully that makes a bit more sense about the actual dot plots and what they mean okay let's move on much more to discuss one being the Dutch election and so the two two photos you know picture says a thousand words and what you've got on the right-hand side is an extremely happy chap and the bottom right-hand side a particularly disappointed or frustrated fellow top is mr. Rutte who is the head of the Liberal Party which was the bigger majority coalition partner of the existing Dutch government and then on the bottom the fellow that you probably recognize gerp velders of the freedom party who is the far-right canada and going into the dutch elections obviously mr. velders here had was leading the polls for a majority of the time only up until right at the end did you start to see a bit of a move back to the more traditional parties that being the Liberal Party in the end it was actually quite a surprise because the polls again were fairly inaccurate in that they were they were they were they were calling for a very close one race they were wrong in the fact that not like brexit and Trump where the populist movement won out it was actually the reverse of that and what you had was a return to ality politically if you like this popular sentiment that's been a such a powerful phenomenon across the globe since brexit and that led to Trump becoming the president has this is the first sign of a little bit of fatigue and a lot of the conversation amongst market economists that I've been talking to you today and I and I and I kind of agree that one specific point is that people have looked at Trump and they've looked at what he's done and possibly people have started to become a little bit disappointed a little bit frustrated about what actually voting for the far extreme let's say what would you actually gain out of that you know Trump has seen like we said a phenomenal repricing in the markets on the expectation that he's going to do something but what has he actually done the wall that he was going to build from day one they were gonna pay for it hasn't even begun the promise of the immigration ban is probably the biggest one that's you know Trump has had egg on his face not once now but twice the new amended one that he's tried to push forward as an executive order got rejected yesterday so everything that he's tried to do as a campaign pledge at the moment there's been a little bit more far-right leaning hasn't gone through at this point and Girt velders his one-page manifesto was anti-islamic specifically that was his staple of his mandate and how he was pushing his campaign and seeing Trump fails so miserably I think has probably meant a lot of people have kind of lost support in some respects so what we've had on the left-hand side here is quite an interesting graphic because I think it summarizes the results of quite quite nicely this is 2012 where you've got the seats so in the lower Parliament the lower house of parliament in The Hague in the Netherlands there's 150 seats now in 2012 this was the composition of parliament and you can see it was basically led by two coalition partners the VVD and the Labour Party and then you can see the results we had in 2017 are here on the right hand side so actually although popularity of the main Liberal Party has decreased by eight seats they are still by far the biggest party not enough for an outright majority we now go into the process of forming a coalition in the Netherlands which statistically if we were to go back all the way to world war two takes approximately on average about 72 days it's taken the Netherlands in order after an election to form a government they is a particular nation about a history of coalition's they tend to range from around two to five parties this is going to going to again be a multi-faceted government in terms of that then means that this is likely to be a long drawn-out affair before they have a cohesive government in place this was also one of the reasons why this whole event of the Dutch situation even if guelder's had one was actually a much less risk event for the market because with this all of the other coalition partners have already said that they would not go into dill making and a coalition with the freedom far-right party therefore actually he would have had minimal powers anyway what you can see then is the PVV which is velders party did gain in popularity but it the polls were looking for him potentially to win only a few weeks ago and yet this was a pretty concise ofwomen for the Liberals other parties pretty much the same there may be picking up a few seats on the back of an absolute hammering for the Labour Party it almost seems like a repetition of what we're seeing here in the UK where a real lack of credible opposition or leadership in the likes of Jeremy Corbyn has seen Labour's popularity for considerably more recently and the Conservatives as they were to call for a now collection today they would have probably a strong majority on that basis and you're getting the same in the Netherlands where they the Labour Party lost 29 seats that's a huge amount so where do these go they basically go into the smaller left-wing leaning parties as you can see here picking up quite a few seats that's a Dutch situation now this is the final topic we'll talk about and we'll try and wrap things up this is the French election this is the big one in terms of what's coming up in the near term I would say in terms of potential risk factor in terms of potential for another repeat of what we've had in kind of new referendum type market event and the French election first of all it's about knowing who are the main party candidates so therefore who are kind of the power players and what the names we've got to be looking out for what I've got here is a breakdown of the recent polls from a pollster the main one in France which the market pays attention to is called opinion way so you can all you can monitor them on Twitter if you follow them for when they ever release something or you can go on their website they tend to release their poll updates around 11:00 a.m. London time what you're looking at with the French electoral system is slightly different they have two rounds and that's really important for the potential for the pen to win first of all the Premier tour which is the first round and this is when you have all of the major candidates but when you look at all the major candidates really to define the final two that go into the runoff so then in the second tour which is in early May to then determine who becomes French president really you can discount everyone but Emmanuel macron and marine lepen which are the two here that you can see the highest the chap who's probably faltered the most under allegations of scandals of illegitimate jobs and paying of his wife and family of million euros and things like that has been the former Prime Minister Francois Fillon who is the the one in the blue we who's tracking around 19:00 he was actually seen as probably the most likely early a few months ago to become the next French president someone who's been around a long time is very credible knows the system the voting public know him well of having been a formally involved with the government many times he's also a centrist but right-leaning so rather than going all the way to the extreme of the National Front he's a natural choice for a lot of the voting electorate the only problem is that he's had scandal after scandal that's kind of been to his detriment and now what you've had is the rising of the former economics minister and former investment banker Emmanuel macron who is only you know he's a young chap in his late 30s pretty limited really political experienced having started a new political party and he tends to sit as a centrist but leaning left now what you've had more recently is while Phelan has been deteriorating macron has actually been surging because what's happened is is that a lot of these other faces that you can see here people like Benoit Homme on the kind of more left-leaning socialist candidates are so far behind the curve what's happened is a lot of their senior political backers have starting now following and supporting putting their their kind of political might and clout behind macron because they see him as more of a chance of winning what that's meant then is that it's formed what's being called by the market as a centrist alliance and so a lot of the left the far left are joining to become this centrist view people who are even center-right not all of those will want to go all the way as I say to the extreme of being far-right National Front and so macron is picking up a large majority that then explains why when you go into the final second runoff which is most likely or not going to be macron against lepen lepen actually starts to lose a lot of ground this is why actually from a probability point of view lepen winning is much smaller than Trump winning or brexit that's because of the two round natured format of the French elections there is currently to this day according to polls a 20 percentage point difference between macron and lepen that is a phenomenally large amount of voters that lepen would need to find that's because essentially macron as a centrist Canada fits the bill for everyone else apart from the far right so he's hitting a much wider political spectrum the other thing to layer into this and will be interesting going forward is now the Gert velders who also is of this populist movement has failed quite substantially in the Dutch elections does the sentiment start to follow through and people start to lose their their thinking that lepen is going to cause an upset this might make a bit more sense of what I've just been talking about this is the first round on the left the second round on the right these are the other kind of most likely candidates that are fighting over the first round so the two more left the leaning benoît hammam Zhang Liu Kim Mitchell on so they are alongside Francois Fillon the other members but really it's down to the top two lepen and macron now lepen you can see when she goes into the second round might draw a little bit of support from Francois Fillon all the voters that would have voted for feed on if he doesn't make it where do those voters go a lot of them may abstain and don't vote at all but at least the rest 50% will likely be right leaning and so we'll go to macron and the other half will be more right of you and so they all go to the pen but when you talk about socialist politicians very very unlikely that if your far left leaning you're gonna jump into bed with marine lepen that would be like chalk and cheese it's just not going to happen what would be the happy medium would be to join macron even if you disagreed with macron to stop lepen and if you're a far left nature to stop a far right scenario running the country you had likely vote then almost in a protest vote and vote for macron anyway hence the reason why the percentage is so heavily in favor as is the expectation that macron in that situation would win and lepen is a distant second now what I've got here on the right hand side is seat projections of the National Assembly which is essentially the French parliament now these are projections of the seats now keep in mind the numbers are pretty big because when we talk about the French assembly we're talking nearly 600 seats not like the Netherlands where there's only 150 now the the centrist parties like the center left center right they basically control the large proportion the majority of parliament the National Front currently only have two seats have two out of the near 600 there are now the projections are that obviously the National Front are going to take quite a big boost on the back of this whole move towards especially things like the terrorism situations that France has been under the immigration issue which the pen has been pushing very hard the euro skeptic view where people are unhappy with Europe so popularity is going to go up and calling the Credit Suisse's reserve research they're looking at to is going to become 58 to 64 the question mark is here then and why this is important is that the left or the centrist if you like are going to combine for nearly 500 seats compared to 50 what that means then is if marine lepen becomes the president and causes a shock and defeats macron she would need to then team up with another political party in order to govern France that means you'd probably have to pick someone of let's say the center-right let's say it was phenoms party the Republicans and but then anything that was far-reaching like calling an EU referendum for France would need to be legitimately come or there'd be a compromise amongst other political parties who are very unlikely to vote for that to happen therefore much like we just talked about with the freedom party and got velders in the Netherlands actually there's very little she can actually achieve even as president because she will have nowhere near enough clout in Parliament to get anything actually done that's another thing to be aware of what I'm looking at here and I know a lot of you might be thinking well and what are polls polls are inaccurate they didn't do breakfast it they didn't call this the Trump right and so on and so forth and I understand your your sentiments but this chart on the Left I just want to put it put it into a little bit of context now the British polls were much tighter calling for leave and remain the polls were wrong they thought we'd vote sir to remain that obviously was not the case the bookies were way off kilter as to were the markets pricing more like ninety ten but the polls had a polling error of about six point two percentage poll points that's on the poll of polls average for brexit so they missed they were the wrong side of that call by about six point two percentage points Daschle result was only about three point two percentage points difference between between the two camps now we just discussed that marine lepen and macron are about twenty percentage point difference at the moment in a second round run-off the polling error if he thought the EU referendum was the surprise was only six percentage points that means that lepen needs to surprise over brexit times three in order to pull this off which is why it's so unlikely that she's going to win because of the structure and format of the French political system as one on the right hand side as we've briefly discussed because of the defeat if you like of the populist movement in the Netherlands which we saw yesterday there was a concerted move last night whereby the betting markets on average probabilities implied from betting odds widened between Mac corn and lepen because people who have viewed this and why did the rally why did the Euro rally last night when the exit polls came out at 8 o'clock last night now it's because people in the short term are viewing that the the popular sentiment is fading and the Pens chances of winning are decreasing that lowers market fears or jitters for the potential ramifications that are then another shock event would have for the market and so the euro appreciates having been under pressure over a longer time period on the back of political uncertainty okay this is my last slide and then we'll wrap things up this is essentially a timeline of what to look out for so as I said this is really a big event you've got the Tribune article 50 early April those first kind of comments in regards to the EU and the government's stance on those negotiations will really be quite critical for the pound to watch but the French elections 23rd of April is the first round the second round then would be on the 7th of May and then that's when we go into the 8th of May we should know what the situation is now these are the this is a chart or a tree basically at the French electoral cycle in two potential scenarios with indicative probabilities based on opinion polls and timelines this has been done by the chaps at Deutsche Bank and so you've got macron which is kind of the most likely and lepen so if we focus let's say on the most plausible scenario which is probably a macron president the probability of that at 45% if then if we follow it through in its most positive impact the majority and reformist government that's what his pledge is this then moves down to reforms in France and progress an EU level which would likely take us out towards the end of the year so if he gets his way and he fulfills his mandate that's the kind of the path let's go the other way and let's go to the red red for danger so to speak Lafleur Penn becomes president which is a lower assigned probability of 25% obviously 5% hung on is the lowest because very unlikely he's going to make it make the cut after the first round but if lepen makes it through then the balance is probably 66% to 33% the balance is that there's not enough seats for lepen to call any call any you referendum in the first place that then means that the mainstream weak government is formed and there's no progress and reforms and European integration therefore even if the Penn wins she gets kind of blocked by the structure of the French assembly on the other hand if the lower probability serve lepen surprises again lepen gets enough seats to call a referendum because that would require a fundamental changing in the constitution of french law might I add to add another level of complexity then we wait for France's referendum ECB does not isolate France we have a referendum which let's say he goes 5050 and if she were to leave they then go back to the franc all hell would break loose in that scenario I would say that's a very low probability but if you think of Europe as an ideology France and Germany are the heart they're the engine of what makes Europe Europe and actually when you break down the multi level analysis and go in-depth the difficulty that someone like the ECB actually has is that they have to set one monetary policy for all the different nations that comprise of the euro zone the problem they have with that is that you often hear of the North and South divided Club Med Portugal Italy Greece are suffering or have done compared to someone like Germany who continues to do quite well actually in terms of ECB policies in the structure and framework of the EU it kind of suffices and serves best someone like France who actually sits right in the middle of the middle-of-the-road then you also start to layer in the fact that actually polls would tell you that actually the French people strongly believe still in Europe and although they want a fundamental structural change in EU reforms they don't actually want to leave Europe because they see that as benefit on the whole so obviously a lot to consider obviously I've been talking for quite a while I do realize and I apologize for that I hope it's been interesting though but that pretty much concludes the session what I'll do is I'm gonna hand over back to Paul I'm gonna let him maybe jump on talk a little bit more about trading live in the system and a free trial for that service if you pop any questions into the chat room then I'll come back on and I'll address those and then this is something we're going to do hopefully quite regularly we'll try and do one it's let yet to be defined but probably every month so hopefully you can join us again and we'll cover a different topic but thank you very much for for listening hopefully you've you've learned something new or found something of these situations to look out for in futures that will hopefully make it more sound when you're when you're making your strategies in the future okay guys thank you very much and I look forward to taking some questions

Channel: AmplifyME

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Keywords: trading, trader, learn to trade, forex, bonds, commodities, markets, economics, macro, analysis, politics, election, news, netherlands, wilders, rutte, le pen, macron, trump, theresa may, article 50, brexit, uk, parliament, polls, france, fed, fomc, dot plot, inflation, gdp, economy

Id: dkYNv_-u2hc

Length: 80min 38sec (4838 seconds)

Published: Thu Mar 16 2017