China Says It Has Agreement With US To Roll Back Tariffs

OK, very good morning to everyone. It is Thursday, the 7th of November. I hope you are well. Big headline just come out this morning as we were arriving at the office: China says it agreed with the US to roll back tariffs in phases. And so before I go into the details, here's how the market has responded across asset class. Immediate injection into the equity index futures. So you see the DAX, NASDAQ, and S&P 500 futures here, a pop on the upside. T-notes lower, gold lower, the Dixie down. And so consequently, both major pairs— EURUSD top left moving higher, cable also just testing up and around its pivot. And WTI crude, as you would expect, any de-escalation in the trade war would equate to a removal of those concerns about the impact on global growth. And so oil also moving in tandem with the upside that's been seen, um, in regard to equity markets. So yeah, a, a sharp and positive response so far. So let me just talk about this news and what's happened first, and then I'll talk about some things to consider, uh, and my thoughts going forward. So starting off, go back to the headline. China and the US have agreed to proportionately roll back tariffs on each other's goods in phases, according to Ministry of Commerce of China. The amount of tariff relief would come in the first phase, set to be signed in the coming weeks, and would depend on the content of that agreement, without giving further details. So for me, the really important point about this headline that's come out is For one, this is China, who I would say has been a little bit defensive in this part of the most recent dialogue of trade that's been happening. And this is a positive step. They've kind of offered a bit of an olive branch here. If you do this, we'll do that. However, for me, the important player on the tariff side is the US. And the US at this point have not yet confirmed that this is the, uh, indeed what's being talked about, or how close we are to in fact this actually being implemented. Now, as per the reasons which we went through in great detail yesterday, I think from the leverage point of view from the US, and then also just kind of appeasing the domestic base in that respect. I just think it's still definitely not a done deal. I don't think the US are going to come out and just agree to this. I actually think that you need to be very vigilant for any moment now going forward. But I guess really, uh, in a few hours' time when we start going into the early hours of the Euro— or the US Open, so from around 11 AM, I would just be very alert for what did the US say to this latest piece that has come out on Bloomberg citing some of the, the Ministry of Commerce comments from China overnight. Because for me, I still find it a little difficult to believe that the US are going to agree to this because of those aforementioned reasons. So if that were to be the case, then obviously, um, pump and dump, I guess. We go back to this kind of very headline-responsive world of positive counteracted by negative. Remember, there's so much backstory to the political nature of what these two countries are trying to achieve as well as mitigate the current economic downturn. And with that being said, I mean, here's a graphic of the slump in commerce, US trade with China. Obviously we had the trade balance data earlier in the week, I think it was a Tuesday, it tumbled in September. And so definitely, you know, economic stress, when it gets to a significant degree, certainly sharpens the mind. I kind of think that's a real political point of interest. Something like Brexit, for example, as much as Brexit seemingly has become such an emotive subject where the electorate is so full focused on this one singular issue, that even though Boris Johnson's deal is worse economically than Theresa May's, it just doesn't matter because people— it's just about do it or don't do it kind of situation. All the rest is just detail. That's all well and good until people start losing jobs, companies start going out of business, and the cost of living starts going up and people get so, you know, there's a tangible difference to people's lives, then you'll soon see people fall into line. That is what history shows us. So here, I mean, certainly the intensification of the impact of what it's having on exports to China, imports from China, certainly would suggest then that, you know, deal-making could well be in the offing. Given the fact that they, they need to counteract this, this impact that it might be having on both, both economies. So that being said, I still stand by the point though. I mean, here, one of the things I was talking about in the briefing yesterday is the idea that I just saw the market was too overtly positive about the current state of play, uh, i.e., that we we were kind of, it was an impending inking of a deal on phase one, I just thought was, was the market getting a little bit ahead of itself. Now one of the things that was coming out late yesterday was this idea about where is the summit gonna be. Now, the latest reports have suggested, that came out yesterday afternoon, that Trump and Xi may not be able to sign a partial trade deal until December. Now the timeline obviously being pushed back, This is exactly— if you follow me on Twitter, let's give myself a bit of a shameless plug, my handle is below, but yesterday morning I was tweeting saying, if I was at the negotiating table acting as a strategist for President Trump, I would be— why on earth would I cut a deal now? I would absolutely want to take this all the way up until, what is it, the 15th of December when those tariffs are going to kick in. I would absolutely want to keep my weapon on the table, um, just to make sure that Chinese implement what it is that they're saying they're going to do. And so it being delayed now, these talks could be slipping into December, I think is absolutely in fitting with that, that kind of view. I think, you know, you've got to adapt and, and use the, the kind of art of the deal strategy, uh, in terms of game theory, thinking about what the US are after and what the Chinese are likely to do and so on. And everything, I think, has played out in such a fashion thus far. Now, yesterday I was talking about Iowa as one of the reasons why I think it would be difficult for Trump, really. Certainly, that would be a difficult one to manage, given it's such an agricultural center for US exports, particularly soybeans and those kind of soft commodities. So Iowa and Alaska apparently now have been ruled out, and I think that's probably a better tactical move for the US, but also for China. Let's not forget that, you know, Chinese people and American people are very different culturally, and the Chinese do not like to lose face, let's put it. And so being able to sign a deal on a more neutral ground, or in fact even some locations in Asia are being discussed, shows that they're in control of the situation. Because just like we talk about Trump a lot, Xi also needs to appease his political base back home in mainland China. So one possible location on the neutral front that's being discussed is London, where the two leaders could meet after a NATO summit that Trump is due to attend on the 3rd to 4th of December. I think timing-wise that works quite well because definitely it doesn't mean that come the 4th, the second day of that meeting, Trump's just going to sign a deal with Xi. But it means then, well, what we could have is the next 3 weeks of the groundwork being set to really develop the details around a lot of the headlines that we're hearing at the moment about the different phasing of potential cancellation of tariffs and so on. That's— that needs a lot of work. This is just headlines we're seeing this morning. And then the 2 leaders meet, they kind of discuss the, the top-level finite points, and then perhaps we get closer again. The strategy being Keeping that cliff-edge deadline is a, is a powerful weapon that I think the Americans will want to have. And then if there is a deal to be done, it gets done at the 11th hour. And if a deal does get done, again, as we've seen before, like this, like Brexit, does the goalpost just get moved again? And Trump kind of manages the situation, drags it out, prolongs it a little more. As long as the equity market stays where it is, it's, it's job achieved at the moment. Other possible sites that have been discussed here: Europe and Asia, but the former is more likely, with Sweden and Switzerland among the possibilities. So again, this idea of looking for some sort of political neutral ground— I mean, you're talking about London, Sweden, or Switzerland at this point. That's probably the likely location. So yeah, that's, uh, that's the main crux of the matter. This is the other headline, of course, we've just discussed. So my summary point here with this headline that's come out this morning is the markets have obviously rallied. Now what you're seeing here is a little bit of consolidation of those initial moves. So gold, uh, is still lower, T-notes still lower, but we just I feel, and rightly so, the market is hesitant to really continue that move. And I don't think it can until the US come out. And for me, on the, on the, on the balance, I think that the US are not going to play ball on this issue, uh, even though that this might be the talk underway. Even if it is, I think the US won't want to show that they're so receptive so early. If that makes sense, from a political strategy. That's my thoughts on that. So just be careful, trade headlines will be key, and the US responding. I'd keep an eye out from 11 AM onwards as we get into the early hours, uh, North America. Other stuff we're looking at today, let's have a quick transition to, uh, this is the, the very useful ING crib sheet for the Bank of England. I'll get Sam to share this in the chat. Now while I'm going over it. Sam, if you could kindly do so. Um, this is the easiest way I find to really summarize what you're looking out for. Now, uh, long story short, the Bank of England is likely to be a bit of a, bit of a non-event. But what I do like with the matrix that ING do is it just makes life much easier because rather than going through copious amounts of research, they just structure it into a nice format of being, uh, top dovish, going down more hawkish as scenarios. And then from left to right, the key areas of which you need to be aware of when looking and dealing with this Bank of England announcement. And remember, the Bank of England announcement today is one of the 8 meetings— this is one of the 4 where we get the quarterly inflation report, now renamed as the Monetary Policy Report. Where they unveil their forecasts and we get a press conference with Mark Carney and the rest of his, uh, MPC crew. So here the main subject matter of interest, of course, first and foremost is Brexit. How explicit are they? How do they see the impact of that having on the economy? What can be quite clear to define how hawkish or dovish they are at the moment. Because we get the forecasts, we're going to get update with growth and inflation. And then what about their forward guidance? What do they think about their rate hike path? Now, ING are going for the third option, which is a hold in rates. So to be clear, the interest rate decision today for the Bank of England is absolutely going to be on a hold decision. There's no way they're going to hike or cut, and it's almost definitely going to be 9-nil. They're just not in a position, particularly now with the general election happening in about 6 weeks' time to make any type of decision specifically on actual physical maneuver of their policy. So hold 9-nil, eliminate that from the information you're going to hear upon the immediate release at 12. What you are listening out for then is the statement that they make and how do they describe some of these other things. And then with the quarterly inflation report, um, expectations are that, uh, here's a a look at the gloomy outlook. So Bloomberg have surveyed all of the analysts on Wall Street and asked them, um, what do you think about growth and inflation? Now, given the fact that 2019 is near at the end, we're focused here on 2020 and '21 growth, 2020, '21 inflation. So these second and third one, and then the two at the bottom. And you can see the, the yellow line sharply outweighs the kind of pink one, that's showing then that nearly all analysts are expecting downgrades to growth and inflation. Now, how severe or not those downgrades are, that could be point one of interest to dictate how then things might occur after that, of which their description of Brexit will be key. The other thing then is what do they say about rates? Now, ING saying they simply reiterate that gradual limited tightening may be needed. A more— the most dovish way that they could phrase their forward guidance on rates would be this top right-hand corner: removes tightening bias completely, risk one or two members even vote for a rate cut, i.e., we get a 7-2 split. The most hawkish would be hints that market pricing is too dovish and signaling a rate cut is unlikely. So again, it's very good to get the the kind of nuances of the language down. And this is what makes obviously trading these monetary policy events can be quite tricky. But if you have this crib sheet, definitely makes life easier. I definitely agree with what they were saying about a reiteration of the current stance on the rates. Um, here, what do they think about Brexit? Well, the base case is warns of a period of entrenched uncertainty but notes good news of deal being agreed. Because at the moment, remember I think there is a degree of some neutrality or positivity because of the fact that a deal has been done in principle, at least a little bit of progression from where we were with Theresa May's failure in her withdrawal bills. And now we've got a general election, of which the baseline scenario, at least for the moment, is that potentially this could sort out the impasse in Parliament. Now, one thing I would say with that is Obviously, uh, the election at the moment, the pound's been quite a bit more quiet because it's not really going to ramp up until a few weeks' time when we hit the 12th of December on election day. Um, one thing is though is that there was a downtick of about 2 points for the Conservatives in a poll that came out of Sky News yesterday. One of the things you probably would have read about was Jacob Rees-Mogg just basically making some pretty mismanaged comments about the people who died in the Grenfell Tower, which is definitely not what Boris is going to be wanting going into an election campaign. Everyone knows the score with Jacob Rees-Mogg, of course. It kind of really— the press have latched on to it because it solidifies this idea that the Conservatives are so out of touch with the normal man. It It couldn't be any more different. I think he was saying something like, you know, "Why would you be so stupid to stay in the building? Why didn't you just get out and not listen to the firemen?" Yeah, I mean, I don't need to say how much was wrong of that, given that you're at the moment campaigning to win a popularity contest. Definitely is not going to do you any favours. But these sorts of things, the You know, Theresa May, when we had the snap election in 2017, it was Conservative complacency that really killed May, as well as Corbyn galvanizing the youth vote. Theresa May did a pretty good job at just basically going against the, the older demographic by things like the dementia tax and things like that, but also I think a degree of complacency. Now I think Boris is going to have learned from those lessons and but he's got to rein in that type of comment from Jacob Rees-Mogg if he's going to get this done and secure that majority. This sort of thing's not moving the market right now. Tories still have a significant gap in the polls, and I don't think polls, generally speaking, are that market-moving, not unless they really start to converge or diverge to a significant degree. But if they remain around this 7-8 point gap, I think that's that's not going to move the market for the time being. Final few points, um, pretty seesaw in oil prices yesterday, particularly to the downside. Decent sell-off on the fact that you had, what, a build of 7.9 million in inventories. That was accompanied by the fact that it looks like OPEC are gonna roll over their policy that is existing at the moment. I think their meeting is on the 4th, 5th of December. So just about a month away, and there were some growing expectations that they were going to do more in terms of the degree of their output cut, but it looks like they're not going to do that. Um, so a little bit of a reversal on the back of the Chinese comment from the Commerce Ministry this morning, but we're trading around pivot in the future. Sam will talk about it more technically, but we are still more than 60% down from the high point from yesterday's session before some of that inventory data came out. We saw some of the technical breaches on the downside. Quick look at earnings. There's been quite a few coming out of Europe. Um, some of the main movers: Unicredit, the Italian bank, up about 4%. Siemens are actually up 2%, better than expected profit comes though with a gloomy outlook. But as I said, they beat their profit estimates led by health and software. Um, the other notable names: LVMH up about 1%. Rolls-Royce in the FTSE down about 3%, uh, are some of the headlines. That's pretty much it in terms of the, the news coverage from my side. Quick look at the calendar. What else have we got? Uh, Bank of England, of course, we've discussed midday, but then you get the monetary policy report press conference now, which will be at 12:30. So do keep in mind that's a two-part event in that respect. And not really expecting anything at all in terms of the rate and the vote split. Very much expected to be unanimous. Uh, US data, as it's Thursday, the regular weekly jobless numbers. We've also got consumer credit later on, but that's not really a market mover. So actually it's pretty quiet in the US front. And speaker-wise, other than Carney later on, you've got Fed's Kaplan, who's going to be a voter next of the year. It's going to be later on this evening. And then Christine Lagarde as well is scheduled to speak at some point today, but no definitive time as yet. And some Spanish auctions hitting the market as well this morning. So actually, I think the balance of power for the overall cross-asset class and intraday sentiment resides on what the US have to say with this— this latest kind of olive branch, if you like, from the Chinese, where apparently the two have agreed to proportionately roll back tariffs on each other's goods in phases according to the Chinese side. What do the US have to say? Now again, not to push my view too much, I think better to be responsive to the headlines. US confirms this is the case, we get an extension of the moves already occurred this morning. If the US downplays it, we get a reversal of the move seen this morning. That's the most binary way I'd look at this, timings-wise. I'd just be alert from any time from around 11 AM onwards London time. All right, that's it from me. Hand you over to Sam. Have a good day ahead. Thanks, guys.

Good morning. Let's have a quick look, I guess equities, best place to start considering the move to all-time highs in the S&P again, and we're just nicely above the, the R1, which is in fairness have been relatively choppy. We have a look at just how it's traded since the original push higher, and it's been a hard one to get hold of, I guess, in the morning and trying to get a continuation through, just maybe breaking above here. But yeah, it's a hard one to, to judge where this could really go until— and it was saying the US come in and comment where Obviously got some important levels. If we have a look to the left-hand side here, and the, the higher, the fourth and the fifth, that's acted as an area of support this morning, uh, when we've come down. But then you can see I literally just hit that now. So this could be the point where, you know, just looking from a level perspective, the reason why we have found, uh, the buyers to come back in again. Some more just technically moving here, uh, if we were to push lower at any point as well. I'll just be keeping an eye on the previous highs here from yesterday evening, uh, so coming in around 30.78 looking on the hour. So a couple of key levels that have obviously held quite well, um, so far this morning in terms of where we could go to the upside. It's always a pretty tricky one when you're just making new all-time highs each day and No harm in— let me just remove the studies here. I'm just seeing if we can get any sort of trend line on. And here, just looking on the 240, let's have a look if we can get anything. Not for quite some time. So for now, it does seem that stocks are, uh, target-wise are going to be limited. I guess you probably worth actually having something like this on the higher the 1st of October. We have respected it well a couple of times since, so that's coming in not far away from the, the round number of 3,100, uh, as well. So one to keep an eye on. The DAX and other equity markets completely follow in suit as well. You can see a really big push for the DAX this morning on, on those headlines. And, uh, also you can see this trend line here from the high of the 4th to yesterday's high came back, found support not long ago, uh, on that. Once the trend line, for whatever reason, there you can see it disappeared. Let me just draw that on again here. There you go, looks pretty much bang on. Um, so good area support line in this hand to have on, I would say. With equities pushing on, obviously gold could well come under pressure here, and probably worth having on a bit of a trend line from those lows to see if we can start getting some sort of respect from that. You can see here you've got 1, 2, 3 tests. It's not the cleanest, it has to be said, but the way to look at gold may well be just on a break of one of these opportunities to get short, uh, rather than looking to get in, uh, in the middle of this mess. Now you can see we found a couple resistance points, and just by the pivot as well, there could be another area to consider. But unless we get out of there I'm not really looking to, to be too involved. You can see it's just making its mind up, uh, shall we say. Oil, as Ant said, was near the pivot, uh, still trading there. Decent move lower yesterday post-DOEs and completely made sense, the final move, has to be said. And a couple of times we've tried to get above what was those, the, the previous lows from yesterday morning, uh, and then afternoon before the announcement, uh, held relatively well. Worth keeping an eye, uh, just as a couple of areas of support below where we're trading by 10 ticks or so. But oil, you can see over the last couple of days— or should we say this week— um, each time we have made a new high, so going Monday, Tuesday, Wednesday, uh, you can see we've just come back down into the afternoons and the failure to really push above uh, that level could be quite significant, uh, by the end of the week. You can see, uh, here now looking on 240, you've got those highs from the 24th as a decent area back in the beginning of October. So to be above there a few times this week and failing to close would be pretty significant. So an area I'll be keeping an eye on come the end of the week. But yeah, a couple levels to be aware of, literally where we're kind of trading now and those highs and then down to 56, 56 below where we're trading. The pound, obviously ahead of the Bank of England, um, probably not going to be the best opportunity to trade that even at, uh, at 12 o'clock when that announcement comes. But again, similar with a couple of the dollar pairs just pushing higher this morning off those, those comments. You can see where we're trading now, looks quite similar to oil almost. With those previous lows. It's a pretty key point, and the pound has actually behaved relatively well technically when we have broken previous lows like you saw yesterday evening. We just come back for that first real test there, so would expect it to hold for now. In terms of levels to be aware of, well, obviously the, the higher point of yesterday is the current low from the retracement, but back below there, be looking towards 1.2865. Before. Definitely feels like there's better markets to trade other than pound at the moment. I reckon until the polls start getting serious or have any sort of change, uh, it's just going to drift towards the, the election. Uh, the euro, uh, decent push lower yesterday. Um, well, limited, it has to be said, but a decent move from the pivot, which I know a few people got in. And the, the move to what would have been, when, when looking at yesterday, the previous day's low from Tuesday. Did take its time but eventually got down there at half 5. Just coming back to retrace here on a bit of dollar weakness. So this area, similar with the pound, is from previous lows. Another test of this could well see a move higher, and R1 looks like a good place where it could then slow down a touch as well. Let's have a quick look over, see how, you S&P is behaving. You can see here, it's, it's— while it did find support on that point, I think no harm in just staying on the sidelines until we get a bit more confirmation from certainly the US on this deal. As for now, it's just trying to take in whether it's going to be— have a follow-through, or actually we actually look for that reversal. Retracement all the way. Any questions, as usual, please do let us know. Obviously we'll be on the mic throughout the day, and looking forward to the Bank of England at 12, but very much looking like it's going to be a non-event there. Hope you have a good day, and I'll catch you all in the chat.