China Trade Talks Break Down (Again!)

Morning, hope you are well. It is Wednesday, 31st of July, and obviously an important day for markets because we've got the FOMC later on this evening. Uh, just to inform you, we will be covering that live. Both Sam and I will be here throughout the evening, uh, doing it live via YouTube. So do make sure you join us for then. We'll also have a chat facility where you can ask us questions, but we'll cover the whole event in the buildup, the preview, the live release, and then a kind of a debrief after of how the markets have reacted. But coming back to the here and now, a couple things obviously to talk about. As you can see here, Trump lashing out at China as those trade talks resume. However, as I'll update you as we go through the briefing, apparently the US envoy has left. Today was supposed to be the second day of trade talks happening in China, and And only about half an hour ago, latest comment out of a Bloomberg journalist suggested that China-US talks have ended and US officials have left for the airport with no official comment. And so therefore, an abrupt finish to these latest face-to-face negotiations. No official word as yet. We have had the Chinese Foreign Ministry say the US is the side that flip-flopped in trade negotiations during the past year, adding that progress in talks can only be achieved when the US shows some, uh, sincerity and good faith. So quite a quick finish to those talks, and I would say unsurprising, um, as I'm going to discuss shortly. Donald Trump, um, went on a bit of a, a tweeting tirade yesterday, uh, predominantly aimed at China. So I don't really think it's too surprising, but ultimately a breakdown once again of one of the key top-level macro kind of risks in markets doesn't bode well for just general sentiment overall. But looking at the charts this morning, one thing that's noticeable is oil's a little higher. We've had the 7th straight stockpile decline in the API data last night, so we'll look at those numbers shortly. But WTI crude as well technically breaking above some key levels. So we're up about 37 cents, $58.42 down here at the bottom. Otherwise, cable very quiet, a day of consolidation, very much so yesterday after a very big beginning of the week to the downside. That technical breach of that level, the fundamental kind of repricing of no deal, has all kind of been accounted for, at least for the moment. So not too much movement in the FX markets. Uh, equities, despite the trade comment, um, global stock futures did see a slight move lower about 40 minutes ago. However, we still remain in slight positive territory across the board, um, in the US futures at least. Some outperformance in the NASDAQ. We did have Apple report after market. We're going to have a look at their numbers, but they moved higher in excess of 4% last night, so maybe mitigating some of that. Negativity from the breakdown in the trade side. Some positive numbers coming up—

Apple.

However, starting off with the Asian session, a few things to be aware of. Firstly, Hong Kong shares in China and Hong Kong were weighed down by news that the Politburo, which is generally the, the top of the pyramid in terms of who defines policy in China, they pledged to avoid applying stimulus to the property market. Property market obviously under pressure given the economic slowdown being experienced in China, but China's saying they're not going to backstop that with further stimulus. Then Hong Kong— the Hong Kong Exchange was actually shut early today, had to close ahead of the normal scheduled time due to a tropical storm hitting the area. Meanwhile, elsewhere in Korea, Samsung shares slid on the back of a decline in profits, um, and then you've had this latest breakdown now with the, uh, US-China trade talks. So quite a few negative things developing overnight in Asia. However, maybe the saving grace being the, the stellar performance from Apple reporting after market last night. So I'm going to go straight into some of those headlines, we'll talk about them a bit more As per usual, I'll leave the charts and the trade setups to, to Sam. So let's start off with, with Trump. Um, I was trying to think about this last night because yesterday Trump— I counted it last night, I'm not sure if he did more tweets obviously before I went to bed last night, but last yesterday Trump did about, well, at the time 32 tweets. 32 in one day. He was, when he first became president in 2016, averaging about 6 at that time. So obviously you can expect the frequency of tweets to increase probably even further now that this political campaigning period is underway for his second term for 2020. But importantly, yesterday he absolutely lashed out at China through a series of tweets. I'll give you a little bit of a flavour here. He said, China is doing very badly, the worst in 27 years. He's referring to the fact that their GDP is the lowest in 27 years. Then he added that, was supposed to start buying our agricultural products now, but no signs they are doing so. That's the problem with China. They just don't come through. Our economy is much larger than the Chinese. Then he just goes on and on in a series of other tweets, just basically criticizing China. The one thing then, the Chinese Foreign Ministry, after these latest reports that both Mnuchin and Lighthizer have left to head to the airport in an abrupt finish to these talks, is this idea that the Chinese Foreign Ministry have said that they're not really— it's the US who are fault. They're not showing any sincerity or good faith. And, you know, let's not forget the cultural differences between the Chinese and how keeping face is particularly important. And certainly for a Chinese government ruled in a way it is under Xi's ruling, he definitely would not want to be shown or being seen to be pandering or showing concessions to the Americans to the domestic kind of public. So yeah, complete breakdown in these trade talks. The soybean issue that Trump's talking about, this is— I thought we'd have a quick look. This is looking at China's imports of US soybeans have now dropped to their lowest since at least 2004. And this is one of the things of which, according to Trump, that China had promised that they would continue buying and so the show goes on, so to speak. So I definitely would keep an eye out for any further developments on this matter as we go through today, but ultimately, probably as we go later on into the afternoon London time, people will be sitting on their hands waiting for the Federal Reserve announcement for later this evening. Interestingly as well, and again from a rhetoric point of view, you're probably going to get more of this Those 4 ladies who've been targeted by a lot of the Trump contingent in regards to their being multicultural and of different religious faiths. Apparently Trump was at a campaign rally last night and they were chanting, "Get her out! Get her out!" You're going to get a lot more of this. The point I want to make here is not really a political one, but from a market's point of view, you know, is this going to really feed through into impacting markets, this kind of quite racially, I guess, hostile environment as was going to no doubt surround this campaign period for Trump? I think not. I mean, I think everyone's aware of the status quo of what he's aiming for and who he's trying to appease to get him over the, over the line politically. So the point being is, as much as you're going to hear lots more of these types of stories, and it might sound quite, quite outlandish, the point being is, from a market's perspective, that's not really what matters. From a market's perspective, it's about this trade war for the moment. And the latest with that is that talks have broken down once again. Looking elsewhere, let's have a look at Apple. So Apple shares actually rose in excess of 4% after the closing bell, so a positive development for the FANGs in that respect. And importantly, and we were talking about this in the, the briefing yesterday, about how Apple was in a quest to to diversify their income stream away from the iPhone. And Apple generated less than half of its total quarterly revenue from sales in the iPhone for the first time since 2012. And I think that's quite a meaningful, uh, and symbolic shift for the company. They reported a record $11.5 billion in sales of services in Q3. So a record level, as we were saying, in these service products, which they're really trying to push at the moment. A couple of other things. Apple's two major independent product lines not attached to the iPhone, Mac computers and iPads, they only made up about 20% of the company's revenues. So what quite a few people are looking at is the fact that if you look at the wearable devices, i.e., the Watch, if you look at AirPods, headphones which have been particularly successful, these are all things that do still require an iPhone. So they can't work in isolation like a Mac computer and an iPad. So a lot of what people are looking at from Apple in the longer-term perspective is they're gonna have to start breaching out into having some of these products available to work on other operating systems and platforms. So removal away of the kind of Apple ecosystem in that respect to try and capture some of that other market. Revenues from the smartphone did decline 12% in the quarter from a year earlier. So we are still looking at the fact that iPhone, the iPhone X in particular, has struggled. But Apple has said that this year's efforts to rejuvenate sales with discounts, new more financing options and trading programs is being effective, at least for the time being. So yeah, good news for Apple overall. Uh, and interestingly, this ambition to restructure almost their revenue streams seems to be paying dividend, at least for the moment. Looking elsewhere, a couple of other headlines to be aware of. A few people putting this around this morning, uh, looking at the that China's— is the highest ratio of firms in China forecasting earnings declines since 2016. This comes as deadline for companies to report their earnings is at the end of August in China. So profit warnings signaling more gloom for their, their local economy. You'll remember 2015-2016 was very much defined by an era of a potential crisis of a hard landing in China, and we're just moving up in towards that kind of area now as we've got to 40%, the ratio of firms that report a deterioration in their first half earnings. So again, Chinese economy still warrants close monitoring, um, from an economic data point of view as we continue to go forward. Um, I'm not actually going to do much at all in terms of discussing the Fed, because I hope that all of you will join us this evening. 6:30 PM, we'll kick off live on YouTube. 7 o'clock London time is the main part of the announcement, and we'll do a full briefing then. But overall, I did send out to the, to the Amplified Traders the, the Decision Day Guide from Bloomberg. You can have a read of that in advance. But from a Overall, top-level perspective, a rate cut is 100% expected today from the Federal Reserve. The baseline expectation is for 25 basis points. Uh, the federal funds futures are priced of a probability of that at 76%, a 50 basis point cut at 24%. More importantly is going to be the subsequent language that surrounds this rate cut about the intention of further rate cuts in 2019. That's basically the summary. We'll go into the details of exactly how they might convey that when we do the session later on this evening. Oil traders, WTI crude, probably the standout of the morning on the charts to get things underway in UK and Europe. You can see we've seen a decent breach of the high, that resistance area of yesterday's price activity around its respective R1 on Tuesday. We've broke through that yesterday evening, and then we've added some as the API numbers last night reported a 7th straight stockpile decline. And with that, we saw a drawdown of 6 million. Expectations were for a drawdown of just 2.75 million. Cushing, a draw of 1.5 million. Gasoline, a draw of 3.1 million. Distillates, a draw of 890,000. So a full house, if you like, of bullish data. The crude and gasoline this time both supporting the same directional movement in what otherwise has been in recent weeks of conflicting signals. So a bullish kind of signal there, setting us up for the DOE, which we're going to get later on. And then, not sure if you caught this yesterday on Twitter, but our head of trading, Piers, put out his latest sterling call. Anthony Cheung, you know that when this happens, got to pay attention because he doesn't tweet that often, but when he does, more often than not he is right. He said, I quote, Sterling finally under pressure this week. I think more downside to come. I expect Boris Johnson to call a general election by the latest 29th of August for a 3rd of October election, leaving 4 weeks until the 31st of October. October deadline. I guess he's justifying that on the basis that legally, I think it's a period of about 5 weeks technically in order for a general election to take place, so he needs to announce it well before the actual deadline takes hold. Pears then adds that I expect sterling one more leg lower ahead of the general election on no-deal Brexit panic. He's looking for a break of that post-EU referendum double bottom at 1.20. And looking for a test of 115. Again, looking to target the psychological handles here, given the fact that my charting system doesn't even go back far enough for me to look the last time we were below 120, um, given the fact that— was it, Sam, 3 decades? Yeah, 35-year low when we're at 120. So you've got to go back obviously a long way to get to that point. So Yeah, just thought I'd point that out. Obviously you can jump on his Twitter account, his handle @piercecurran, if you want to, if you want to check that out and look at the annotations on the chart that he did. Calendar-wise today, just quickly, obviously the Fed, the main event. So I would stress that given the importance of the announcement tonight, because it is going to be a really interesting one, there's a lot for the Fed to manage in market expectations about not so much the cut but about what they're going to do for the rest of this year that's going to make it particularly interesting. So for this morning, a couple things. First of all, just quickly, you did have Australian CPI data overnight. That's already come out, um, came in at 0.6 quarter on quarter, 1.6 year on year. So both metrics were 0.1 higher than expected, hence you've seen some appreciation in the Aussie dollar. Overnight. Going further forward into the morning, you've got some German data coming up, the unemployment change and rate just before 9 AM London time. You then get the flash eurozone CPI at 10 AM. That will be important, that would be an interesting figure. Do keep an eye on European assets for the release of that at 10 AM. Then though, going into the afternoon, you got the DOE's, but then the main focal point of the session, the Fed, 7 o'clock. We'll be going live at 6:30. Excuse me. A couple of earnings as well, just to wrap things up. Still pretty busy on the earnings slate from UK, Europe, Switzerland. You've got this morning a couple of the outperformers: Air France up 2.5%, Credit Suisse up 2%, Airbus up 1.5%, L'Oréal down 4%, and Lloyds is FTSE down 3.3% at the open. Um, US earnings to look out for today, the big guys would be General Electric, Qualcomm, uh, would be the ones I'd be watching most closely. Okay, that's it from me. Let me hand you over to Sam, and hopefully I'll see you in the chat room, and I'll catch you guys later this evening for the full Fed release.

Hi everyone, we're, we're doing well. Just, uh, start off with the, the pound here, and I just posted this in the, uh, in the chat room. Just trying to have a little, little break higher out of this. Well, the trend comes down from the low that we had back on Monday. You can see just getting a break of that around where it's coming in around 95, so only 7 ticks above, but we were just getting squeezed in from both directions. Then you can see I decided to have the initial break to the upside. Of course, this is not to say we've now seen the, the low of the pound and we continue to push higher, but certainly those levels we were half waiting for yesterday may well now come into play. And the, the low that we did have back on the Monday around 4 o'clock, coming in around the R1, would be an area to consider. Of course, to get through there, you've got yesterday afternoon's high higher, 18, uh, about 20 ticks above here, which could be of interest as well. To the downside, and this might be more favorable, looking for continuation, uh, of this pound weakness, a break of this trend line here to really target the, the low of the year as well could be a good opportunity. Of course, Fed day though, so it wouldn't be too surprising to see us, uh, range-bound choppy price action in the build-up to that data as well. Nothing out of the UK, and you've got the Bank of England tomorrow. So it might well be just to, to not go chasing too much, and even a break of the lower trend line, not to get too aggressive. But certainly that is an opportunity, uh, should we, we see any increase in volume, break of that trend line, to target the, uh, the yearly low there as well. Elsewhere, just probably coming up to retest a level now that the briefing yesterday, we were just talking uh, when I came on about how the, the S&P had just broken a trend line and it never recovered. It never recovered from that. The DAX is really leading the way. That break of the trend line and the pivot saw us push lower and almost got down to the, uh, the 3,000 handle. This morning, similar in that— let's put this on a 15-minute— we did have a, a break of this trend here. You can see really well respected. Let me just put that in the the right place. Really well respected from yesterday's low to the Asian session low to just before, uh, 7 o'clock. We got those 3 strong tests, then the breakthrough, uh, there as well. Be worth keeping an eye what happens when we come back to, to retest this trend line. At the moment, that looks like it'll be coming in— well, we need a kind of the high of the day as well, but 30.19. So that's somewhere to, to mark up on the chart. We're just finding resistance at the area support before that breakthrough as well for the S&P. As a line in the sand, I think that's as good as any with the high of the day. You can see if we were to, to break above the, the high, you've got quite a nice bit of resistance from yesterday morning as well. And then if that was to push on, then suddenly you're looking towards 3024. Longer term, we'll do some levels as we approach the, uh, the Fed, but course, if they were ultra dovish, we still have that top of that trend line coming in around 30, 34, the, uh, the multi-year one. Let's just have a quick look at that just to put that on. I'll just remove the studies there. You can see that would look to come in today anyway like this. You can see, yeah, coming in around 30, 34. 4.35. So definitely one to have marked up later on. But of course, we'll, we'll do a rundown, uh, closer to the time and during the session as well. Other currencies, euro just coming up to quite an interesting level. While we did spike through it last week in the ECB, you can see 1.1204 just over the last few trading sessions has been pretty key as a zone, with maybe a few ticks either side. Was also the high that we had back on the 24th and with the R1, uh, and that's just coming into— or just came into play a bit earlier. To the downside, you can see we are just starting to make these higher lows, but that gives the opportunity that if the trend line was to break, it's much like the pound, you can get that continuation to the downside. Again, not being too aggressive on, on the Fed day, uh, in the anticipation, uh, of, of that event. People will be waiting for forward that. But you can see again, like the pound, you've got those 3 tests or more, so at least we know the market is looking at that. Gold as well, expect to be a decent mover later on come 7 o'clock and into the press conference at half 7. We reached yesterday that really key level, and again it is a zone much like the euro was, just of key resistance going back from— well, I mean, this is really since the middle of the month. It's the last trading day of the month today, so that's something to factor in. But quite a lot of, uh, highs around this point, and we are just obviously testing that again this morning, having found some resistance. That multi-month trend line— let's just get it on from a shorter period just to see if we did get a retest of that. Almost. Oh well, we did, to be fair, exactly on, on the point. So we're looking at this around the R1 yesterday yesterday. If it was to come in during the briefing, it didn't. So we came up first, tested that trend line. I mean, can't really get much better than that. And that looks like it would come in again around the R1. So maybe opportunity later is if they're ultra dovish, break of that trend, and looking to get up to some higher points going back to the 19th. But at the moment, that's holding very firm. And this morning, I would definitely have that, that marked up on the chart as well. Quick look over oil. Obviously got the, the DOE, uh, later, and you can see the API. And, um, even though we did come down, uh, at the back end of the session, really we were still elevated. Uh, looking here just on that 60-minute, I'm just going to make it a bit smaller. You can see we did come up to test quite a key point, had a little go at trying to break through around 58.50, the high of the 17th holding, uh, strong on that first test. Decent price action around this point in previous sessions as well. From a range-bound trade, the pivot offers like a good area, but also can we get back to at any point today around 57.65, previous high that we had on the 24th? And there's a zone, you've got the, the high of yesterday morning. It seems quite far away, uh, and if we were to keep pushing higher, and this might be later on You can see a really key point around 59.30, the low of the 15th. We have just looked to have broken out of this, this mini range that we've been in for oil. We were getting squeezed in as we saw from the beginning of the week. That breakthrough, albeit quite choppy, has led to a decent push higher over the last couple of days. However, some of these interesting resistance points just above where we are trading. Quick look at the, the DAX to see how we're doing on the 30 minutes past the open. Relatively choppy. You can see yesterday's move was, was, was pretty strong, and that break of that trend line just before the open didn't help things for the DAX, or of course in, in Europe, in the US as well, which followed suit today. Much more lackluster in, in movement, much like the pound yesterday. So So after a decent move to the upside or the downside, likelihood is you aren't going to get a continuation of that straight away. Some important resistance just above the highs of the day going back to yesterday, uh, you can see here around 130, uh, 12,177, and then just above the pivot as well. You've got some quite key resistance worth keeping an eye later on, any trend lines that maybe appear from those, uh, the downside, much like the euro and the pound and the S&P, maybe waiting for those breaks to get the, the market agreeing with any bias you had to the downside, might be favorable for the DAX rather than looking to go too aggressively short from where we're trading now as well. Any questions, as usual, please do let us know. As I mentioned, we'll be on from half 6, and myself and Anna will be looking over some of the charts in more detail then as well. Hope to see you later. If not, I hope you'll have a great trading day.