Is Trump's strategy working?

Okay, so very good morning, Wednesday 15th of May. Hope you are well. Getting straight into the briefing then, and I'm going to talk to you a little bit about, first of all, the recovery, as you can see from the headline I'm showing you at the moment, that we had in the equity market. And that's led to a higher close on Wall Street. The major 3 bourses kind of finishing up about 0.8 to 1% higher. Not that there was anything new, but as we were kind of discussing in the briefing yesterday, did have that, you know, in my mind that to a certain degree the escalation as to what we know from the information available at the moment has largely been priced in. And so kind of natural for the markets to pull back a little bit, which was the case yesterday. Going forward then, definitely going to have a look at a few things. Not massive news flow this morning that's really moving markets. If I just switch over my screen, you can see here it's a fairly quiet open, largely reflective then of this positive close on Wall Street, filtering through then to a positive performance overnight in the Asia-Pacific region. So China higher, and likewise in the other nations within that region. And so European stock futures are higher as well this morning. Currency-wise, dollar index is basically flat, so major pairs very much a reflection of that. Gold is obviously a touch lower, top right chart here. I was just looking on a slightly longer time frame, basically looking at the course of the last month's price action. So you can see after we had this material breakdown in the, the conversations given what Trump said at the weekend in response to China, then gold popped higher, the traditional kind of flight to quality move, but obviously that's being faded at the moment. And as gold pulls back down in the futures space, obviously coming towards S1, uh, just technical levels of quite clear support coming up at around that point of the S1, uh, kind of 1293. Just below there you've got, as I put these ellipses on, some previous areas of pretty significant support and turn resistance through the month of April and May. Quite key level there. Any breach of that then opening up then the next kind of point down at around 1290 that we'll be keeping an eye on if this stock market continues to recover. As I said though, pretty, pretty light in new news. So really what I want to talk to you guys about was a couple different things. One was the idea about China and its treasury holdings. I know we've touched upon this before, before, but a few other graphics I can show you. Also wanted to talk about Trump and his Twitter account. Yeah, he's really not holding back at the moment. The frequency that I generally kind of roughly track has definitely stepped up a gear or two, and he was making some quite interesting comments about the Federal Reserve and about quantitative easing in a speech he was giving yesterday. So we can have a look at that. We had the WTI price movement, a little bit of a response, uh, slight downtick, but recovered, you would say, and now steady ahead of the DOE release later. But we'll look at those numbers. And then we had German GDP this morning I can update you on. So getting straight into the news, and one of the things we had overnight was a batch of Chinese data. So let me just sort the screen out so you can read the data. So we had industrial output retail sales, and fixed asset investment. And as you can see here, all 3 numbers in April not only seeing, uh, quite sharp decreases from the prior month but missing expectations across the board. So yeah, industrial output probably the biggest miss of those and certainly the sharpest decrease comparative to a month-to-month basis. And if you think about it, we are looking here at April So this is even before the breakdown that we've had in this latest episode of the trade negotiations. So obviously a worser picture has already been developing here economically or domestically in China, even before this latest situation has evolved. One thing though that's obviously quite interesting here is, you know, an interesting thing is the worse it gets, the worse it gets for China, or the more that Trump can be aggressive the more he can threaten the tariffs, the more economically damaging it is for China, the more China from the authorities' point of view needs to step up and stimulate the economy, which they've been clearly doing, and the more then by default that supports the Asian market, which net result supports the US equity market. So in a, in a rather roundabout way, the more aggressive Trump gets, and there definitely is a domino effect here, which each phase, each domino falling, does have a slightly different trade opportunity. But Trump ramps it up, stocks fall, so there's one kind of moment of trading situation there. However, then China responds as they do by just upping the ways of which they can help mitigate the downturn. Things stabilize, and then equities respond, and we start to rally again. So it's almost a— again, from Trump's point of view, I guess it's a dangerous game because you're banking on the fact that China are not going to go to more aggressive ways of trying to counteract what it is that you're doing. But the point is, from a— certainly from a trade point of view, I mean, China's coming close, if not already exhausting, the amount of tariffs that they could do to US goods because obviously it's heavily outweighed the other way. So this does bring about the conversation then of this kind of headline, and this was definitely something which came up on Monday. If you remember, there was a Chinese journalist that was commenting. Now, the Chinese journalist, to recall, said on Monday that the nation's scholars are discussing the possibility of dumping US government debt, and that caused a momentary kind of panic in the markets, but but then kind of rationale returned as to the reasons why that's probably an unlikely thing to happen. The consensus, of course, is that that kind of situation of China going to that degree to counteract this is, is probably one of last resort. One of the major things here is that China, you know, where is it going to park its cash, its large foreign reserves, if not in the US? It would also have to consider the consequences, of course, on its own economy, because you're buying back basically your own currency, and a stronger yuan undermines the export-led, uh, kind of composition of their economy. One of the things here as well, a couple of graphics to make more sense of this. This is the dollar offshore yuan, and so this is graphically just wanted to show you, you know, where we were, where we have been more recently. With the general Q1 recovery in global markets after the kind of quite violent episode of negativity that was, was really dominating in Q4 of 2018. You can see that was when, you know, the trigger effect, if you think about it, the equity sell-off, we could hit the low at around Christmas, which was really down here. But if you look, it was the kind of one of the main catalysts, if you like, that initiated that sell-off. Not only were, you know, things like the Fed being fairly resolute about interest rate hikes, the escalation of the trade war— the knock-on effect of the latter, of course, is that the Chinese yuan was getting close to the, the point of the pain threshold, if you like, which is 7, which is the key kind of figure. Now things have recovered, as we know, but this latest breakdown in the trade situation has seen quite a violent weakening of the currency to the point of which now we've crept above 6.9. And so the closer we get to 7, the more— there's kind of a pattern here that the closer we get, the more active the Chinese central bank becomes, the government becomes, to try and counteract this. Now, one of the things here then is selling of treasuries. Now, China has a history of selling treasuries to buoy the yuan. Now, if you think about it, if you're going to buy back your own currency Well, you need to sell some of the stockpile of Treasuries you have, but they're denominated in dollars. So by selling those Treasury holdings, you are in effect almost facilitating what Donald Trump wants in regards to a weaker dollar, which makes US exports more attractive. Not only that though, you're then strengthening your own currency, which makes you less competitive, if that makes sense. So, you know, these are the, the kind of mechanisms in order to facilitate this type of thing if that were to happen. If you remember, 2016, this was when that fears of a Chinese hard landing were happening. This is when Chinese economic growth on a year-on-year basis was kind of falling— 7, 6.8, 6.5— and we were kind of fearful of where does this end. So the currency was weakening, and to counteract that, China did start to sell down some of its holdings. However, they built that back up through 2017, and we are to where we are at the moment, about 1.1 trillion. So yeah, just a couple of things I thought I'd show you and just to think about. To give you an idea as well, looking at the Chinese yuan, to put this move into context, the offshore yuan has slumped just shy of 2.5% this month alone, given the intensification in these ongoing trade negotiations And that's your weakest point. As you can see, we've traded since December. One of the other things then, moving off this kind of subject but similar, which is still talking about Donald Trump— he suggested that the Fed can match China in any aid on trade war impact. So basically, Trump is— the market, as we've discussed, is fully aware of the heavy intervention kind of tactics from China to prop the market up. Now This is where at present the US, being a developed market, is very different from an emerging market, which China still is. Now, part of the long-term play of China to become this overall global trading partner, if you like, to, to dominate them in time, given its economic growth projections, being the world's largest economy, they have to move away from this kind of oversight and intervention from authorities. Now, in the Western world, obviously there should be a degree of independence. Even though Trump would want to say and get Jerome Powell, we know, to cut interest rates and so on, it's up to Powell's independent decision with his FOMC committee to look at the economy and make the best decision based on that. And that alone. Now, what Donald Trump was tweeting yesterday, which is quite interesting— this was the tweet that he said: China will be pumping money into their system and probably reducing interest rates as always. And he's not wrong by saying that, that is what they do in order to make up for the business they are and will be losing. But Trump said, if the Federal Reserve ever did a, quote, match, it would be game over. We win. In any event, China wants a deal. Now, you know, again, a lot of this is political kind of posturing, as I've said many times before, because, you know, the Fed are never gonna do a similar type of action to what China does. But, you know, what does the farmer in Midwestern America need to know about that? Well, not a great deal. He just needs to see the political kind of strength being shown by the administration from a top level dealing with foreign counterparties. So other things then to be aware of— well, quickly before I jump to the other Trump story, Trump followed this up. He was doing a bit of a tour in Louisiana from some of the energy firms yesterday, if you saw that. But he said, and again, just so you're aware of the kind of where we're at with with Trump rhetoric, because it's very important to know these things as to ascertain whether or not the market might move on. Is he saying what he said before, or is this something new? And so the president later, after this, after this tweet, told an audience that with a little quantitative easing, US growth would be at 5%, is what he's saying now. So again, it's, you know, on the table now from the president is not only the fact that interest rates should be lower, but now quantitative easing should also be happening as well in order to bump growth up. So yeah, the other thing finally with Trump is this, and this is kind of a sideline miniaturized trade war happening within the broader context of to trade negotiation. And this is Donald Trump is poised to issue an executive order as early as today that would effectively prohibit US companies from using any telecom equipment manufactured by Chinese Huawei. So this, you know, this is where, you know, this has been quite a contentious issue, of course, but this again kind of just reflects the situation of where we're at at the moment. With this latest breakdown. Interestingly, I think it's Alibaba and Tencent, so the two China, both US-listed tech giants, are reporting later on today. I'm sure they'll be interesting as well if any of those single stock watchers or those looking in a tech space, and certainly the NASDAQ. All right, moving on. Oil inventories, I must stress, you've probably seen if you're looking at crude, there's chart. We kind of blip lower, very marginal, I would say, and a drift low in overnight Asia Pacific, 25 cents. We've recovered that. If anything, we've just drifted a little bit lower again now, but down 50 cents in crude. And we had a generally bearish report out of the API last night as the precursor to the DOE's we'll get later. So this was the numbers. We had a headline crude build of 8.6 million Expectations were for a drawdown, so obviously much larger than anticipated. Cushing, slightly larger build as well, 2.1 million. Gasolina build, which is over half a million, so again against expectations, as was distillates, 2.2 million. So, uh, on balance, bearish numbers. Um, you know, the inventory data, as we know, this week in particular crude oil is being kind of dominated by the, the overall broader macro picture from two sides. One, the demand on the trade updates, and two, the other side, the supply on the potential ramifications of any supply shocks, particularly in the tensions in the Persian Gulf at the moment. So as ever, I do think that the infantry situation is kind of a, a short-term focal point for volatility and potential trade opportunity But overall, I think the broader picture still wins out more often than not. And I would expect that to remain the case once we get into the latter part of the afternoon. The other thing we've had this morning, and I just wanted to show you, this is a graphic of German GDP. This is looking at the flash quarter-on-quarter figure. So going into Q1, and it actually came in in line with expectations. But importantly, it being in line means that we've had a bit of an about-turn in German growth, which obviously had been on the cusp of a technical recession. If you remember, we printed at zero last time, and that came after a contraction of 0.2% in Q3. So German was right on the borderline of that, and, and this is one of the main things that has caused quite a lot of, you know, pessimism within the euro area, particularly around the economic performance of Germany, which has suffered not only because it's an export-driven economy and the threat of trade wars, but the ramifications of Brexit, uh, and also, you know, political stress that's happening there as well. So a little bit of a welcome relief domestically for it to be bouncing back, but overall not really a game changer for an intraday trade opportunity, but more something to contemplate for the medium term. from a macro perspective to be aware of. Calendar-wise, today is a really busy day actually. Uh, plenty that's going to be happening now with the German data out of the way. Um, the morning, there are a few little things to keep an eye on. The IEA monthly report comes out about an hour's time, following on from the OPEC report we had yesterday. Eurozone GDP estimate for Q1 comes out a bit later at 10 AM, but really it's a US-centric session, as is normally the case. So you've got US retail sales, New York Fed manufacturing at 1:30 alongside the Canadian inflation data. You've then got US IP cap utilization at 2:15, uh, business inventories at 3, the crude inventory at 3:30. You've then got a whole slew of speakers, uh, Fed and ECB related throughout the afternoon. So it's definitely— I think if you're looking at markets and strategizing and thinking about where the, the predominant opportunities will come, I, I definitely think it's going to be a, a US afternoon kind of focus. So maybe a little bit of conservatism warranted unless something quite obvious occurs this morning, could be warranted. I would suggest that likely the best action might come a bit later on. Um, otherwise, just having a look elsewhere, uh, earnings. Yeah, as I said, you've got a couple of the US tech giants coming out in terms of from the Chinese side, uh, that probably warrants as well being aware of. Another thing I'm just looking at here, um, let me just bring two charts just to finish up. I mean, I haven't really looked too much specifically at these this morning, but I just caught, caught the corner of my eye as I'm delivering this briefing. This is the Bund overlaid with the BTP, the Italian future. Quite interestingly, you're seeing BTPs have just broken lower, perhaps technical move here. You've just broken through that kind of double bottom test that we've had over the last day or so. Technically in the futures. But obviously Italy coming to the forefront ahead of the Eurogroup, which commences tomorrow, and a lot of focus on their fiscal— let me just change my screen. That's what I'm looking at here. BTP at the top, Bund at the bottom. I'm just looking at the case that the fiscal situation and the deficit targeting of the government of Italy is going to come under scrutiny at the Eurogroup, you know. And is this a little bit of front-running of that? Yields in Italy, you know, potentially have been creeping higher just given a bit of domestic political stress that's been put on the coalition government given some of the latest scandals that have been happening internally there. So yeah, quite interested to see, uh, this movement at the moment. The Bund on the opposite side, uh, you're seeing quite a decent move higher irrespective of the fact we actually have some supply coming to market with the longer-dated duration 30-year bond tap later. But, uh, yeah, I'll have a little look at that after the briefing and see if there's anything else to warrant such movement. All right, that is it from me, so I'm just going to hand you over to Sam, and I'll catch you in the chat room. Thanks very much, guys.

Hi guys, hope everyone is doing well. I'm just having a A quick look over equities, and I think worth giving a, uh, a shout out for, for Anthony yesterday calling the, the bottom, or potentially the bottom, should we say, in the, in the recent down move that we've had. And a key level today, I mean, we got through that 2844 last night only to close below, and we're just trading back on it now. So still give that some weight, uh, if we were to continue pushing higher. There's a level around the R1 that I definitely would pay some attention to. You've got the trend line that— if we just bring this in here— going from the, the low of the 10th to yesterday's high around the R1. You also got the resistance from the beginning of Monday at that point as well. So along with the, the trend channel or the top of that trend channel coming in around that area, 2861.62 on the futures, likely to be a very important point today should we get there, uh, to the downside. And, and this may be led more so into the afternoon, but similar sort of thing, getting those trend lines on from those lows. Are they connecting up? We're just coming to test this, test that now. And then I'll be looking at the, the DAX as well right now, which is just coming under a bit of pressure, similar in the reaction we had yesterday. So I'm gonna look at this trend line You can see actually just potentially looking to break that there. So if that was to go, you might have a, a follow-through to, uh, US equities as well. The Dow Jones and NASDAQ very similar, uh, in that way. Euro yesterday, we came down following those Salvini comments. We're still lower, although we have only just really broken that low of yesterday, uh, today, which was made, uh, around 1:00. So still a, a relatively tight range there for the euro. I'll be keeping an eye should we push higher at those previous lows that we did break through. Um, so on the futures coming in, 112.53 would be a pretty key area. And of course, if we were to push lower around the S2, you've got that double bottom from the 7th and the 9th as well, which I would give a, give a lot of weighting to. Uh, sorry, uh, looking at the pound here as well, which really was drifting lower. Not necessarily the, the biggest story or anything, more just the continued sentiment, I would say. And, and it does feel, even though we obviously broke through that trend line a couple of weeks ago, that it's been inevitable that that 129, it will come back into play. I see a couple of people, you know, in the comments on the briefing have even, you know, mentioned that a couple of times, and it doesn't seem too far away now. Uh, and that would also be on the S1, looking at this longer term, 1.29. You can see just the importance of it. The lowest really then it would have been since February the 15th or 14th where we had such a strong reaction higher. So quite a key level. And if that was to come into play, be keeping an eye on that for sure. And certainly the reaction there will be, will be key. Data-wise for the UK, nothing out this morning. So, uh, nothing, you know, if you are short, could be one to sort of hold for a while. The dollar not necessarily massively stronger or weaker, pretty much flat for the day. Uh, be keeping an eye on gold as well, how that's come lower, and that one, and that $1,290 levels is key. But we're also talking yesterday about the high, the previous high that we had back on the, uh, the 8th, that NS1. I guess you could call that a bit of a test this morning. I'd still be keeping an eye on these two support levels. 1.1290, I think, would— or 1.1290, I think, would be still a good level to potentially get in that long. More intraday, again, trend line from those highs. Can we get that third test push above? That'd be something that I'd be looking at, perhaps, you know, wanting a bit of dollar weakness, uh, for that. Or if equities were to come under pressure, which the DAX is half signaling now, this might be the cue to look for gold to break that level. Where could the DAX go having broken through that trend line? Well, the low of the overnight, uh, move just above the pivot, quite a key, key level. Euro Stoxx as well following suit and almost at that pivot point. With oil, as usual on a, on a Wednesday, a case of sort of waiting for the DOE unless you were to have a really good opportunity. And it's stuck within this, this this range going back for the last couple of weeks, really this month, uh, this $3 range. Tried a couple of times to get out either way. Um, certainly would be a good opportunity on the break of, you know, the upside or the downside. But for now, I think I would, I would prioritize waiting, I think, to the DOE, unless we were to have a break above the high of the day, which is also this support from yesterday and this area of resistance we broke through at $61. So, but in the sort of 60-cent range that we're in intraday, I think unless there was a comment out or, you know, really strong or weak dollar, I'd only be interested in getting in, uh, this market underneath $61 or above, uh, $61.63, unless you were to start having you know, really clear trend, um, being respected. But for now, only a couple of tests either side. So yeah, one to keep an eye on for sure later on. I apologize for my croaky voice today. I hope you've all been able to listen. But as usual, any questions, please do get them in the chat. And of course, we'll be on the mic throughout the day. I'll just keep an eye on equities at the moment, who are just drifting lower, led by the DAX. And in turn, uh, you got T-notes and the Bund pushing higher. But I hope you have a good trading day, uh, and I'll catch you in the chat later on.