Global equities fall as trade war fears return

Good morning, Friday 8th of February. Hope you are well. Welcome to the morning briefing from Amplify. I'm going to do the, the kind of usual routine. I'll cover the fundamentals and Sam North will come on and look at the charts from a technical perspective. As you can see then from the kind of mix of charts that I have on my screen, we've got a continuation of dollar strength. In fact, the DXY is just about coming up to recent highs. That was seen in yesterday's session. So a real continuation of that, that theme which has predominantly weighed on, on markets. EURUSD continuing the, the kind of directional trend lower of which has been in play. I can see here already Sam's got one of his, his trend lines on there. I'll leave that for him to look at in more detail, but quite, quite a persistent move lower there given this dollar strength. It's kind of been the same reiteration of that theme each briefing I can remember in the last couple of days. Uh, cable just giving back some of the gains that were seen, um, this time yesterday. We were talking about the fact that there was quite a strong possibility that, um, markets' expectations almost so downbeat, so dovish or pessimistic, that it could be a strong likelihood that Mark Carney and the NPC, through the quarterly inflation report and press conference, deliver not something hawkish, but just not as dovish maybe as some might have been looking for. And, and consequently, it could lead to pound strength. And, and that's exactly really what happened yesterday. You had that little blip on the initial release, but then a decent move higher thereafter. As I said yesterday, I think when it comes to Bank of England commentary and forecasts and the movement we had yesterday, that's just a short-term isolated move. If anything, I would take that block of price action and just take it and move it aside, because now we revert back to the bigger, uh, broader theme, which is that of course of Brexit and the negotiations which are still ongoing. And just given the fact that we're getting obviously as the days go by ever closer to that looming deadline, um, otherwise the main thing I'm going to talk about really with you guys is the, the breakdown, it seems that's occurred with the US-China trade talks. Now, it's been pretty slow going in terms of the negotiations. There's not been a great deal of progress, but that's almost been taken as a positive. There seems to at least have been an open line of dialogue, and the markets have kind of taken some solace out of that as a net positive in addition to the now dovish Fed. And that's what helped create that big bounce in markets after the late 2018 sell-off. We know Chinese markets have been off this week. They're still at this point celebrating Chinese New Year, so they don't really return to markets until next week. And ahead of that, part of this I feel is Trump strategy. If I was Trump, I kind of would do the same. I think it's, you know, China are coming back to kind of back to work on Monday. Well, just put the seed back in their head that, look, this isn't a done deal here. I'm not just gonna bend over and cut a deal with you. We're gonna have to have some meeting, some compromise on both sides to get what I want and what you want. And so he just put a shot over the bow, and what he said basically is this: Trump says he won't meet Xi Jinping before the tariff deadline. Now, this is important because market expectations had been that all of these kind of mid-level meetings that have been occurring with the various trade delegations and with the US Trade Secretary Lighthizer had been a build-up to then Xi and Trump meeting in Vietnam at the end of this month. That being then a couple of days where essentially they can kind of dot the i's, cross the t's on the fact that not an all-out trade resolution, but an ability to make some decent progress and commitments to continue dialogue going forward. But Trump has now pulled the trigger and said, actually, we won't meet before the deadline. So again, he's just asserting his usual quite aggressive posturing. He also has threatened to raise tariffs if there is no deal. So the net result of this, I think, is twofold. One, the initial reaction. Well, the initial reaction, of course, is a negative one. This here is a graphic of the S&P 500 Yesterday. So you've had the gap lower, then you had economic advisor Larry Kudlow, obviously one of the senior people within the Trump administration, and Kudlow yesterday during the North American session said there is a sizable distance in trade talks. S&P responded in kind. We know, remember, in that pyramid of hierarchy of kind of macro themes, the trade war really does sit right at the top given its its repercussion on the global economy and its importance. Then CNBC followed later on just to add kind of fuel to the negativity that Trump and Xi are unlikely to meet before March 1st. So again, it brings up the prospect that there could be a potential that nothing happens, and therefore that $200 billion of tariffs resets from 10% to 25%, and the markets would need to reprice that in. And that's what occurred. Yesterday. Now, my overall thoughts with this are that, um, I still believe that all that's going to happen here is there will be an agreement, but it will be agreement basically to keep on talking. The can gets kicked down the road and they just say, okay, will remain as it is for another month or 2 or 3 months, whatever the case might be. So with that being said, there's obviously risk to to be factored in. And so hence you get a little bit of negativity. I think that's just a bit of a knee-jerk reaction to, to the fact that this has been a fairly quiet issue for the moment. I can absolutely guarantee you it's going to ramp up again next week when China return to the fold after their holiday. One thing here then is global equities are on course for their first weekly drop since the rally began late December. Now you'll remember on Monday I was talking about the fact that from a US equity performance. We've had the best rally in the S&P in just over 3 decades for those number of fundamental reasons that we had discussed. The one thing though is that this week has been particularly quiet from a calendar perspective, but next week, if you think about it, we've got an ever-diminishing timeline on Brexit and a heightened prospect of then having to price in a little bit more of a no-deal scenario, or at least pushing this down to the wire and the kind of cliff-edge mentality which typically starts to weigh not just on the pound but can add some kind of contagion effects or feelings at least, which typically would be quite negative. And then also you've got this impasse on the trade side with China and the US likely to be— the comments will start hitting the tape and rumors and so on. So if anything, you can already see that the market is kind of— and this is what we were saying about the dollar weakness and how that we feel has changed because arguably the dovishness now has been priced in. Well, the dollar has been rallying at the moment. And, you know, from a, from looking forward now, I think the risk factors start to materially get more important or more potent for markets to, to monitor. So then a little bit of pullback and we're on course then from a global equities MSCI. It's kind of the benchmark of indices of then all country world index on a weekly change. And that is indicating we could finish the first time in, what, 6 weeks, a negative after that, that turn. Remember, there's a, there's almost a diminishing return once the market is repriced a dovish Fed. It gets to that level and then that's priced in. So, uh, that I think has had its effect now from Jay Powell. Okay, quick look at Brexit. Where are we? Well, It's almost— I know I sound like a broken record, but exactly where we were yesterday. So she's done her tour of Northern Ireland, of course, uh, no real meaningful progress has come of that as yet. Europe, main important point here is they still remain very reluctant to make any type of concession, at least at this point. I think they, like Britain, know that they're still some time still left before really the pressure is at a point where there's no alternative, they have to cut a deal. From a timing perspective, Theresa May still in Brussels. I believe she's with the Attorney General Geoffrey Cox. You'll remember Geoffrey Cox from the Tory Party conference gave that rather rousing speech. Quite a bellowing fellow, but he is going to be Theresa May's sidekick, for talks with European politicians this afternoon. So there's probably going to be tweets. Tusk has been tweeting again, and it's kind of the usual thing in regards to— they're just not willing to, to, to bow down to the demands of Britain. Britain needs to come forward with what they want, and at this point Britain really is not doing that, and so therefore Europe has nothing to respond to. That's where we're at at the moment. So I would expect some more comments, some more tweets, journalists and so on. But ultimately, I think we're going to end today with no much more clarity than what we started at the beginning of the week. That being said, though, weekend press, the Sunday papers, Telegraph, Times, The Independent, The Guardian all need to be monitored for the latest insider thinking, not official Number 10, but behind closed doors, the whispers in Westminster, what's going on. You'll find that out probably on, on Sunday. From a pound point of view, as I said, I think the Bank of England is a short-lived temporary phenomenon, if you like. That's over now. We revert back to type and that is as it has been as a trend for the week, dollar strength. And as you're seeing right now, cable continuing to edge lower. We're now back below the pivot level and I would continue to see that to be the case from at least a directional point of view. Final things, and I'll hand you to Sam. And we did have some comments from another Federal Reserve member yesterday. You'll probably recognize this chap. This is James Bullard of the St. Louis Fed, and he said that US is likely to miss inflation target for 8th year. So obviously very dovish, but he is probably, uh, after Kashkari, the most leaning on that side. So his comments come as absolutely no surprise. Hence the reason why it's having limited impact. But just wanted to cover that for any of the, the guys newer to markets and monetary policy. And from a single stock perspective, uh, I just wanted to do this update because I know that many people always ask me about Deutsche Bank specifically as a, as a stock. And I know there's a couple of Amplify team members who've had some vested interest in Deutsche Bank more recently. But as a timeline, rumors according to unnamed sources in local domestic German press suggest that Berlin and Brussels will decide on a potential merger between Deutsche and Commerzbank before the next European Union elections in May. Now, this has been one of the big talking points about basically the two consolidating, given how the weakness that's been transpiring in Deutsche Bank shares, which has, I think inherent faults happening on so many levels it would take me a whole briefing to explain. But this is meant— then what happens? Because Deutsche is one of those, um, SIFIs, a systemically important institution, in which arguably too big to fail. So rather than— we've had with Deutsche, I think it was the Qataris coming in looking to increase their stake, but the other probably most logical move would be a combination of sorts between various different assets of Deutsche and Commerzbank. So as a timeline, that could occur in May. All right, calendar, and then let's get Sam on, see what he's got to say on the, on the level side. It is pretty quiet. There is not a great deal coming out from a, from a UK-European economic data point of view, and it's pretty quiet on the speaker slate. From the US afternoon, you've got a bit of a Canada focus, only if the FX traders looking at the loonie in the live room. You've got the average hourly wages, employment change, unemployment rate, and as you know, that local currency very sensitive to economic data of a tier 1 nature. The Baker Hughes rig count, I don't think it's going to be an immediate oil market mover, but certainly of interest for the bigger picture. In regards to— we've had quite large fluctuations actually of operational US oil wells week to week. I think it's been a -15 number, previous to that a +10 number, and definitely worth keeping an eye on given the US being the number one world producer of crude oil at the moment. So my advice would be, given the lack of real definitive calendar events in the form of economic data, central bank or government speakers or earnings is I would say you really need to keep an eye on the trade war situation. Does Trump say anything further? Do China respond? And any other kind of exclusive or source comments that come out of the major financial news agencies on that matter. Trade wars really was a big focus yesterday, and it's about where are we at, how does China respond, because they, they haven't really done so as yet as towards now the new kind of more aggressive posturing from the US President Donald Trump. All right, that's it from me. Let me hand you over to, to Sam, and I wish you a good weekend.

Thanks, guys. Good morning, guys, and happy Friday. I hope everyone's had a good week so far. I have a quick look over a couple of the markets to start over with. Uh, Well, a couple of dollar pairs actually. As you can see, the euro all morning has just been in that range until breaking through not too long ago, and that low of the day, uh, going, well, quite quickly around just after 8 o'clock. And, and yesterday's low briefly tested there with the, the S1. A couple of the, the dollar pairs are coming down to some quite interesting, uh, points even just intraday. The pound one to, to keep an eye on would be around yesterday's S1. We had quite a good level of resistance once, twice, and then before that breakthrough while Carney was speaking. So 1.2940 on the, the futures would be a point that I'd, I'd want to keep an eye on. And seeing as we're on the pound, just gonna put it on a longer term chart because of course coming into Friday, uh, medium term, longer term traders will be looking about where we finish the week and how that perhaps may lead to a bias next week or the weeks to come. And just having a look at the pound here, a bit of a trend line that I think would be worth having on to the meaningful vote— oh no, sorry, the, uh, the flash crash early in, in January across the sort of the FX board. You can see, you know, wipe that out, but close above. So we've got your free test there, decent level to, to be aware of. And also, uh, you've got the, the Fibonacci 50% from that December low, or the low of last year if you like, to the, the high of this year in the same sort of area. And also, I'm just going to remove the Fibonacci to make it a bit clearer, but you've got quite a lot of support around that level, all, uh, since we broke through on the 11th of January, day 2, 3 4, 5, and again 6 yesterday where it's rejected it so well. So it's almost like a key line in the sand for the bulls and the bears along with that trend line. And even going back to where we did break it on the 11th of Jan, you can see how good it was a resistance level. So strong point of interest to keep an eye on there for the pound this week. I think we would have to have quite a significant down day to break all of that today, but if we do, you've got to imagine there's a bit of a negative story and we can start drifting lower, uh, quite quickly. Uh, oil, speaking of trend lines as well, we, you know, we've, we talked yesterday and the day before about that trend line breaking, uh, the, from the December low, low of last year had broken through. And, and really since then it's correlated markets to sort of follow suit, haven't they? You know, all the, all the, the US equities have been coming down. Admittedly yesterday that was sort of led by the, the downgrade in, in Europe um, on growth. But as long as oil stays below here for, you know, this week, certainly I'd favor that the sort of the move to continue. Taking it, um, a bit more intraday, there's a couple of real key levels. And I'm going to put the pivot on because around that pivot point you've also got the low that we had back on Wednesday as well. I think If you were looking to maybe get more of a sort of an intraday long, you know, a nice break above that, and you could, you could take it down to— or up, I should say— to 53.11. If we go more into 15-minute chart, oil and equities in general actually just drifting higher a bit now. But you can see you've got that nice trend line just forming here from yesterday evening, this morning early session, and then about, well, 20 minutes or so ago. So you've got your free test, so the market is respecting it. So So a good opportunity could well be on the break of that to those highs, uh, would be something that, uh, I'd look for as well. I remember talking on the mic probably about 4 o'clock yesterday. I'm just going to remove that. Actually, I'll leave the December trend line on. And came to the, um, the screen and saw the trend line here that was on, and I didn't put it on myself, but definitely was one of interest. And you can see the third test was there yesterday when we were coming down, little tiny breakthrough but held well. So again, for those perhaps looking for an extension of this overall December low trendline break, you know, a break below that and 52 could be a good opportunity to target, you know, a real further move to, to the downside. And correlated markets with their Obviously with the, the S&P there, you can see— want a trend line. I'm just going to remove the, the camera just so I can get this trend line on, and I'll put it back on in a moment. You can see from that low here, similar sort of trend line break as well for, um, for the S&P. Got your free test, got the retest yesterday, and what an opportunity that would have been. So short term, yeah, I think we still get a bit of recovery, but as Ant mentioned, it could start to pick up again next week. And I don't think Trump's gonna let this market get as low down as possible. He's got a bit of wiggle room to go with equities, but he knows what good talks, good trade talks do to this stock market or stock markets in general. So we'll see. But also on S&P, you've got the, the 18th of January, which is quite a key level. Almost today I'd be focusing on that. You can see it was the high on the 18th and the low on the 31st, uh, not too far away from today's S1. If we have a look a bit closer, there would be something, uh, that I'd also be having a look at. And on the daily chart, I won't switch it back just for time, uh, but the, the 200-day moving average is above all those highs. So really strong level. People were talking about it on, on Twitter, on Bloomberg. So Definitely, if we do push any higher over the, the coming weeks, have the 200-day moving average on because it's been significant, uh, just recently, uh, as well. Let's have a quick look over at gold, which, uh, had an interesting move yesterday, a bit of a recovery. And I can just see how important that low of yesterday was, wasn't it? The pretty much to the tick was the high on the 3rd of Jan. So really important level, that 1306. 13.08. Potentially, if we hadn't gone through that, I still think 1,300 is a, you know, key level support, one to definitely keep an eye on. Bit of a rough trend line from the, the high of the year, I think worth having on. You can see— well, actually, it's not rough. You've got your 3 tests, 4 tests last, uh, last night as well. If you're looking for it to continue the, the overall trend of the last sort of few weeks you know, that long could, could come in on a break of that. So decent opportunity potentially for gold should that break. And if we just drop it down to 15 minutes, you can see we're starting to just try and drift higher. Probably worth having a bit of a short-term trend line on there as well, uh, for gold that I would, uh, look to, to have there. Just gonna have a quick look at how we're, we're trading overall in the other markets to see if anything sort of sticks out to me. Uh, see, you've seen the DAX recover. Really bad day for, for the DAX yesterday, so it wouldn't be out of this question to see a bit of retracement there. And mentioned S&P, important pivot. You're also going to have the pivot in the DAX, which looks quite a key level. The Bund had a strong day, strong push to the upside as well, so I wouldn't be too surprised to see a bit of retracement across these markets. Keep an eye on gold though, as the the dollar just coming off a touch. If that was to break that trend line, it wouldn't be too surprising to see the other dollar pairs also follow suit. Any questions, please do let me know. I will be on the mic throughout the day, and I'll do what we, we did yesterday with sort of going through some of the trades that guys have taken. And, you know, any questions, obviously, please feel free to put them in the chat. If I don't speak to you, hope you have a good trading day, rest of the week, and great weekend.