(2-minute read)


First, what to watch this week:

Wednesday, 23 October

This is the real test for the withdrawal agreement bill as parliament will spend the whole day from 1200 GMT on amendments and voting on them.


As mentioned yesterday, the two crucial ones to look out for will be the customs union amendment and the second referendum amendment.


Opposition parties will be looking to amend the withdrawal agreement bill motion significantly and that may just force the government to pull the motion altogether, considering this isn't the Brexit deal they are currently pursuing.


Thursday, 24 October

Assuming all goes well, the debate on the withdrawal agreement bill continues with a third reading vote set to take place on the day as well.

As you can imagine from the above, there are still quite a few hurdles that Johnson needs to overcome to get his Brexit deal across the finish line. The first and key step is, of course, to win the vote today. Otherwise, there is nothing to talk about.


If he fails in the vote today, the ball then gets thrown back to the EU's court on the Brexit extension request.


If the EU doesn't grant an extension, we head towards a no-deal Brexit. If the EU grants an extension, we are most likely headed towards a general election - with a second referendum or further negotiations also among the other options.



What does it mean with parliament voting yes and no?

For the first time, UK lawmakers were able to get behind a Brexit deal (in principle) but they could not agree on the timetable to push through the needed legislative measures for the deal to be ratified and implemented.


That saw the pound go for a bit of a ride as it inched higher before getting dragged lower with Boris Johnson saying that he will "pause" the WAB legislation as he seeks further talks with the EU on a Brexit extension.


Where do we go from here?

As things stand, the "pause" means that Johnson's Brexit deal is essentially in limbo. The ball now moves over back to the EU to decide what happens next on the extension.


If they do not grant one, then we head towards a no-deal Brexit on 31 October.


As unlikely as that is, there is still a slim chance on the table and with politics these days, can you really be surprised by something like that?


Anyway, assuming European member states do the logical thing and extend the Brexit deadline, the ball gets thrown back to Johnson and the UK.


What sort of extension are we looking at?

This is where there is still a degree of uncertainty hanging over markets.


A short technical extension (days/weeks) will leave Johnson with little choice but to try and drag his WAB across the finish line and past the necessary legislative hurdles.


It sounds positive but at the same time, it could all fall apart if parliament amends the bill to something different during the process. Can he accept that? Only time will tell.


Meanwhile, a longer extension (January 2020 at least) is likely to see Johnson call for a general election to try and sort out the mess once and for all.


In short, there are still some imponderables to deal with and markets are left "hanging" at the moment with any decision still not in the offing.



What does this all mean for the pound?

On the balance of things, I actually think the events in Westminster yesterday are "positive" for the pound. In the sense that it is not going to transmit to a significant/dramatic fall in the currency in the near-term.


The worst-case scenario was that Johnson would have pulled the WAB altogether but he "paused" it and made no mention of a 31 October push after he was defeated.


It shows that he is resigned to the fact that we're headed to an extension but what form of extension depends on how talks go over the next few days - and of course how he chooses to deal with yet another impasse in parliament.


As things stand, hopes of getting this all done are still on the table and now that parliament has finally got behind a Brexit deal for the first time - even if it is in principle - perhaps the optimism may be justified at the end of the day.


As such, the pound may be weaker as some uncertainty creeps in and about of the immediate optimism has been dented, but there is still hope and I reckon that will be what buyers will cling on to over the next few sessions.




Deal or No Deal: Brexit’s Impact on Forex Trading


Brexit. As we fast approach the impending leave date of 29th March, the very mention of the word is enough to conjure up an erratic frenzy in citizens and politicians alike. But with the future of the UK’s relationship with the European Union still very much up in the air, what does that mean for the foreign exchange trading market?

Today, we’ll look to explore how the various possible Brexit scenarios could directly impact the GBP and, subsequently, the currency exchange rates and valuations offered on the forex market. Whether it’s deal or no deal, we’ve got you covered.

What we’ve learned so far

Amongst all the chaos of mishandled negotiations, weak and unstable governmental leadership and the protests of a dissatisfied voting population, the GBP has, predictably, been fluctuating in recent months.

Interpreting valuable trading information such as rates on the FTSE 100 index of the major London-listed stocks, general market activity points towards the strengthening of the GBP upon the possibility of a ‘soft Brexit’ and the subsequent weakening of the pound upon a ‘hard Brexit’.

As we fast approach the leave date agreed upon the triggering of Article 50 back in 2016, Theresa May and her Conservative government are still yet to negotiate any form of deal with the European Union commission, with both her ‘soft’ and ‘hard’ proposals facing objections within both the House of Commons and Brussels. So, the question remains; deal or no deal?

No-deal Brexit

Undoubtedly the worst outcome for the UK economy, a no-deal Brexit would result in the UK crashing out of the EU and reverting to the rules of the World Trade Organization. In this scenario, a teething period lasting until December 2020 would look to iron out the exact details of the future UK-EU relations.

The major cause of concern in this scenario is the aspect of uncertainty. The valuation of the GBP during this time frame would continue to oscillate as the UK attempted to stabilize its economy, with the impending possibility of a snap-election and a subsequent left-wing Corbyn government further impacting exchange rates. In relation to the forex market, the unreliable fluctuation of the GBP in the case of a no-deal Brexit would make it an unreliable base currency for any pairing.

Deal Brexit

An increasingly unlikely option, a deal Brexit would provide a more attractive alternative to forex traders looking to trade the GBP.

This positivity is, however, all relative. The successful negotiations of a defined exit strategy that maps out the future economic, trade and political relations between the UK and the European Union would see the steady strengthening of the GBP following the initial reactionary valuation drop upon departure.

A deal Brexit is likely to have trade agreements at the very core of its foundation as a way of lessening any impending economic damage – however, the initial blow to the rate of the GBP is unavoidable. Though a trade agreement would look to protect a steady recovery of the pound, the initial damage and the unpredictability of recovery time still makes the currency amongst the riskiest ‘majors’ to trade.


Amongst all the uncertainty of Brexit, there is one consistent: the GBP is going to suffer. For traders looking to continue to use the pound as a base currency in the trading pairs, we recommend keeping a very close eye on the latest forex news throughout the next month and beyond as the UK and EU continue in their attempt to settle this ugly divorce.

Other articles:

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EUR/ Dips to Weekly Lows Before ECB

The euro fell to a one-week low against the greenback on Wednesday, a day before the European Central Bank is expected to add further stimulus in a bid to boost the region’s economy.

ECB policymakers are leaning toward a package that includes a rate cut, a beefed-up pledge to keep rates low for longer and compensation for banks over the side-effects of negative rates, five sources familiar with the discussion said last week. Many also favor restarting asset buys, but opposition from some northern European countries is complicating this issue.

The mere thought of easing is probably keeping the euro on the defensive at the moment, said Shaun Osborne, chief currency strategist at Scotiabank in Toronto. However, were not completely on side with expectations of an aggressive ease we think there may be a rebound in the euro after the policy meeting tomorrow.

The euro was last down 0.31% on the day at $1.1009.

The yen was the weakest since Aug. 1 as optimism over U.S.-China trade talks boosted risk sentiment and reduced demand for safe havens.

China announced its first batch of tariff exemptions for 16 types of U.S. products, days ahead of a planned meeting between the two countries to try and de-escalate their bruising tariff row.

The dollar gained 0.20% to 107.74 yen.

Sterling also dipped after a Scottish court ruled on Wednesday that Prime Minister Boris Johnson’s suspension of the British parliament was unlawful, prompting immediate calls for lawmakers to return to work as the government and parliament battle over the future of Brexit.

The British pound fell 0.19% to $1.2322.

U.S. data on Wednesday showed that U.S. producer prices unexpectedly rose in August and underlying producer prices rebounded, but that data will not change financial market expectations that the Federal Reserve will cut interest rates again next week to support a slowing economy. This weeks major economic focus will be consumer price inflation data on Thursday and retail sales data on Friday.

Forex Manipulation - $1.2B In Fines - 5 Banks FX Trading

Over the past few years, US prosecutors fined more than a dozen banks $11.8 billion over allegations of collusion and manipulation in the FX market - a case that helped upend the culture of traders sharing "market color" in Bloomberg chatrooms. Those same banks have reached other settlements over behavior tied to the 'FX Cartel' not only in the US, but also in the UK, with the initial round of penalties coming in 2015.

But in what has become an unceasing loop of punishments, prosecutions and fines, not unlike the rate-rigging and the LIBOR manipulation scandal, it's now Europe's turn.

NEU Competition Commissioner Margrethe Vestager on Thursday announced that five banks had agreed to pay fines totaling €1.07 billion ($1.5 billion) after colluding to "rig" currency markets to benefit their trading books.

The UK and the US have already prosecuted FX traders involved in some of the chat rooms, which had names like the "Essex Express n’ the Jimmy" (named for the commuter train many of the traders traveled on) and "Semi Grumpy Old Men", with mixed success. Traders were accused of using chat rooms on their Bloomberg terminals to collude about their positioning.

Barclays, Mitsubishi UFJ Financial Group, Citigroup, RBS and JPM have agreed to pay the fines. Citigroup got hit the hardest - it will pay €310 million ($347.65 million), according to Bloomberg.


The Europeans are investigating other violations, and could bring more fines in the not too distant future. A case in the US involving similar charges is ongoing in the US, the only difference being the US is fining BNP Paribas instead Mitsubishi. The banks in that case have agreed to pay more than $2.8 billion in exchange for a guilty plea.

Swiss bank UBS was exempted from a fine since it was the first to alert authorities to the existence of the chat rooms (it ratted on its rivals), according to CNBC.

In a statement, Vestager said the investigation took six years.

"Companies and people depend on banks to exchange money to carry out transactions in foreign countries.Foreign exchange spot trading activities are one of the largest markets in the world, worth billions of euros every day," EU Commissioner Margrethe Vestager said in a press release Thursday.

"Today we have fined Barclays, The Royal Bank of Scotland, Citigroup, J.P. Morgan and MUFG Bank and these cartel decisions send a clear message that the Commission will not tolerate collusive behavior in any sector of the financial markets. The behavior of these banks undermined the integrity of the sector at the expense of the European economy and consumers," Vestager added.

The EU investigation that has been ongoing for the past six years revealed that some individual traders from various banks...exchanged sensitive information and trading plans through various online professional chat rooms.

"The information exchanges...enabled [the traders] to make informed market decisions on whether to sell or buy the currencies they had in their portfolios and when," the Commission said in its report.

Whatever else happens, the fact that these banks needed to collude to make money makes us question the notion that the slump in the big banks' FICC trading revenues was caused by 'market conditions.' Maybe their traders just aren't as effective without their morning dose of "market color".



World Volatility Grows Strong Highest Since Jan. Yield Lows, Dow Down

Losses are accelerating as VIX surges to its highest since January.

VIX is back above 20

Treasury yields are at 6-week lows...

And The Dow is down 500 points - breaking below 26k and its 50DMA...

But Trannies are the worst on the week...

*  *  *

Update (1200ET): No dip-buyers yet...

Dow is back below 26,000, looking to fill that March gap...

VIX has exploded back above 20...

*  *  *

Update (1100ET): Things are getting worse in stockland... Nasdaq futures have plunged since the initial opening bounce, back below yesterday's lows...

Trannies are the worst post-Tariff-tweets, down 2.5%.

*  *  *

Treasury yields are tumbling as US equity markets re-plunge after some overnight gains on Liu headlines.

Dow futures are down over 300 points...

Dow futures are back below the 50DMA...

But Nasdaq futures are the laggard, near yesterday's lows...

And Treasury yields are back below pre-FOMC levels...

5 Out of 6 Central Banks Are Still Flooding Markets With Liquidity

Authored by Lance Roberts via,

Tyler Durden - Zerohedge

Stuck In The Middle With You

In this past weekend’s missive, we discussed the market stalling at the 200-dma. To wit:

“We said then the most likely target for the rally was the 200-dma. It was essentially the level at which the ‘irresistible force would meet the immovable object.'”

“What will be critically important now is for the markets to retest and hold support at the Oct-Nov lows which will coincide with the 50-dma. A failure of that level will likely see a retest of the 2018 lows.”

“A retest of those lows, by the way, is not an “outside chance.” It is actually a fairly high possibility.  A look back at the 2015-2016 correction makes the case for that fairly clearly.”

“But even if a retest of lows doesn’t happen, you should be aware that sharp market rallies are not uncommon, but almost always have a subsequent retracement.”

Importantly, as I expanded to our RIA PRO subscribers:

We are likely going to have another couple of attempts next week as the bulls aren’t ready to give up the chase just yet. We are continuing to watch the risk carefully and have been working on repositioning portfolios over the last couple of weeks. 

As noted, we lifted profits at the 200-dma and added hedges to the Equity and Equity Long/Short portfolios.”

On Monday, the markets rallied a bit out of the gate over continuing hopes of a “trade deal” between the U.S. and China but fell back to even by the end of the day. With earnings season now largely behind us, the “bulls” are going to need improving economic data and relief from Washington to provide continued support for the rally.

This morning, futures are once again pointing higher on news that a proposal is ready to be sent to the President providing just $1.4 billion for border “security,” no wall, to avert another Government shut down. It is highly likely the bill will be rejected by the President and he will start talking about the use of a “national security” issue to fund the building of the wall. This will divide Congress even more than it is already almost ensuring NO legislation passes before the end of the President’s first term.

Also, talks are once again starting with China over trade. This is also buoying markets in the short-term in hopes of a resolution to reduce the impact of tariffs on businesses. Hopes for a noteworthy “deal” remain extremely slim at this point.

But those two issues are actually relatively minor as other issues, as noted on Saturday, will actually bear much more weight on the market going forward.

  • Earnings estimates for 2019 have sharply collapsed as I previously stated they would and still have more to go. In fact, as of now, the consensus estimates are suggesting the first year-over-year decline since 2016.

  • Stock market targets for 2019 are way too high as well.

  • Despite the Federal Reserve turning more dovish verbally, they DID NOT say they actually WOULD pause their rate hikes or stop reducing their balance sheet.

  • Larry Kudlow said the U.S. and China are still VERY far apart on trade.

  • Trump has postponed his meeting with President Xi which puts the market at risk of higher tariffs. 

  • There is a decent probability the U.S. Government winds up getting shut down again after next week over “border wall” funding. 

  • The effect of the tax cut legislation has disappeared as year-over-year comparisons are reverting back to normalized growth rates.

  • Economic growth is slowing as previously stated.

  • Chinese economic has weakened further since our previous note.

  • European growth, already weak, will likely struggle as well. 

  • Valuations remain expensive

Of course, despite those more macro-concerns, the market has had a phenomenal run from the “Christmas Eve”lows and has moved above both the Oct-Nov lows and the 50-dma. This is clearly bullish in the short-term for investors. With those levels of previous resistance now turned support, there is a little cushion for the bulls to hold on to.

The biggest hurdle for a bullish advance from current levels is the cluster of resistance sitting just overhead. Sven Heinrich noted the market remains stuck below the collision of the 200-day, the 50-week, and the 15-month moving averages.

As shown, this set up previously existed back in late 2015 and early 2016. The initial challenge saw the market actually break back above the cluster of resistance, which “sucked the bulls” back into the market before setting new lows.

The correction, that was then in process, was cut short by massive infusions of global liquidity as I discussed yesterday:

“Global Central banks had stepped in to flood the system with liquidity. As you can see in the chart below, while the Fed had stopped expanding their balance sheet, everyone else went into over-drive.”

Another concern for a further rally is that investor allocations never got extremely bearish. The chart below compares the S&P 500 to various measures of Rydex ratios (bear market to bull market funds)

Note that during the recent sell-off, the move to bearish funds never achieved the levels seen during the 2015-2016 correction. More importantly, the snap-back to “complacency” has been quite astonishing. The next chart puts it into a longer-term perspective for comparison.

Despite the depth of the decline, and the belief that the “bear market” of 2018 is now complete, it is worth noting the reversion in investor positioning has not even begun to approach levels seen during an actual “bear market.”

But stepping back to the long-term trends, when managing money the most important part of the battle is getting the overall “trend” right. “Buy and hold” strategies work fine in rising price trends, and “not so much” during declines.

The reason why most “buy and hold” supporters suggest there is no alternative is because of two primary problems:

  1. Trend changes happen slowly and can be deceptive at times, and;

  2. Bear markets happen fast.

Since the primary messaging from the media is that “you can’t miss out” on a “bull market,” investors tend to dismiss the basic warning signs that markets issue. However, because “bear markets” happen fast, by the time one is realized, it is often too late to do anything about it.

So, you just have to ride it out. You don’t have any other option. Right?

The chart below is one of my favorites. It is a monthly chart of several combined indicators which are excellent at denoting changes to overall market trends. The indicators started ringing alarm bells in early 2018 which is when I begin talking about the end of the “bull market” advance.

Currently, every single monthly indicator, as of the end of January, is currently suggesting downward pressure on the market. The only signal which has yet to confirm is the cross of the 15-month and 21-month moving averages. The 21-month moving average has pretty much been both support and/or resistance, to the overall trend of the market for the past 25-years. At present, the market is “trapped in the middle” between those two monthly averages.

If the bull market is going to resume, the market needs to break above the 15-month moving average and rally enough to reverse the torrent of sell-signals running across the complex of price indications. With earnings and economic growth weakening, this could be a tough order to fill in the near term.

So, for now, with our portfolios underweight equity, overweight cash and fixed income, we remain “stuck in the middle with you.”