Markets Await Trump's Response On China

Okay, very good morning to you. Anthony Cheung, I'm the head of market analysis here at Amplify Trading. And before I begin, don't forget to subscribe to our YouTube channel. And Eddie is going to do his normal kind of deep dive into one of the major market themes, and he'll deliver that video on Saturday. We don't actually have a fixed topic for that video as yet. So if you leave a comment on the bottom of this video, let us know what you'd like— pick one subject to know a little bit more about in terms of some of the general news or macro themes at the moment, and then Eddie can shoot a video later today and we'll publish tomorrow morning. And then the other thing is, apart from my kind of regular Monday to Friday market briefings, Sam releases his technical trading setups for the week ahead on Sunday. So again, as I said, subscribe to the channel hit that notification bell and you'll get all the alerts as soon as those sessions go live. But let's just take a look at the charts then for this morning. And I would say it's a really relatively calm open. In short, markets are highly anticipating a press conference from Donald Trump at— there's no ETA as yet, but it's going to be an important one of course because he's going to be unveiling what the next steps are are in regard to China, and that is the main focus, I would say, for today's session. Um, given that though, there's a little bit of just general risk-off in terms of how the asset classes are performing at the European Open. So equity index futures, US-related, are down slightly, just backing off from some of the initial highs that were seen towards really when Europe exited the market. We had a bit of a dip into the close on Wall Street DAX then consequently down about 140 points, just playing a bit of catch-up. T-notes then up 9 ticks. Gold positive by about $2, albeit relatively calm there, trading around its pivot in futures. And in the FX market, the dollar still remains just a touch weaker, down 1/10. Euro and cable relatively flat, if anything just bumping up a little going into this, this this European session. Then oil, yeah, a bit of a roller coaster really. After falling around 10% in a 24-hour period through kind of Thursday's trade, we have recovered through much of yesterday. Well, I'd say Wednesday, Thursday is when we dipped, and then Thursday, Friday we rallied, and then we've come off a little bit. So a bit indecisive in the oil market, a few kind of conflicting forces, I guess, being more supportive so far. Relative success of the loosening of lockdown measures globally in a number of key areas, and that's helping on the demand side. The adherence to the compliance from the OPEC+ of the production cuts, however, that in itself becoming a bit of a contentious issue whether Russia in particular will continue to roll that over. We're going to have a meeting or gathering in about, I think it's about 10 days' time, of those OPEC producing officials, which will be ultimately very important. Then you've got this trade war as well, which has been a little bit negative for price, sensitive of course to any further disruption that that trade war could have, not just on Chinese demand but just reverberating across sentiment for global markets and growth potential. So yeah, that, that's pretty much it from a top level. So going straight into some of the headlines, as I said, a lot of people are awaiting Trump's China press conference And as the news press reports would suggest, it could mark the end of his cautious approach to Beijing. He's always been quite confrontational on some particular comments, particularly on trade, of course, and about how they manipulate their currency in their favor to help their exports and so on. But there are, you know, there's a mix of different things going on here. One is Hong Kong, which we've seen talked about this week. The other is about the human rights issue. About particular Muslims in one part of the country and how they're being treated because of their, their ethnic minority citizens and, and, and how that's going to play out. So that it is multifaceted, and there's a couple of things here to keep an eye on. And here's probably a good checklist of what is going on. So Trump's gonna hold a press conference on China. As I said, there's no set time, but I would assume it's going to happen this afternoon, so I'll keep you posted as soon as we know definitive timings. He's offered no details as yet, but he did say that this conference is going ahead just a few hours ago. Um, the, the, the saying of a conference in itself and that he's basically not happy with how things are happening is what caused a little bit of the, uh, the pullback in equities last night. So for weeks, the administration has been ratcheting up pressure on Beijing about its alleged cover-up of COVID-19. Remember Trump kind of saying it's the Chinese virus and so on. And then in the past week, the pressure in the US has taken a more serious turn, and this comes with basically Washington this week laying the groundwork for potentially removing of Hong Kong's special trade status. That was after a new proposed Chinese security law that threatens the long-standing independence of Hong Kong. And so that's, that's probably the most serious one, I think, that's really elevated this, this recent confrontation, because that would have serious repercussions then for China. And so the threat of quite severe retaliation does increase. And then the other final thing is this kind of potential issue around border disputes between China and India that Trump has said he offered to mediate. And then the legislation awaiting Trump's signature concerning China's treatment of ethnic minority citizens. So yeah, quite a few things to monitor, and really it's what does he do next and how severe and how immediate is that action will probably be the driving force of how markets will close and finish this week. So yeah, I don't really have anything more to add than that at this point, other than I would be— if you are formulating a strategy for this morning, you want to be thinking in terms of a mindset that markets might trade, trade relatively conservatively. Range is probably quite small, quite tight, barring anything unexpected. A lot of people will be sat on the sidelines just awaiting Trump first before then looking to commit to any type of market move. So if you are in a trade this morning, probably worth being fairly realistic in terms of your time frame of how you'd want to hold, how long you'd want to hold that trade. I don't think personally you'd want to be sat in a trade going into kind of the North American Open, so around probably 11, 11 AM London time, because no doubt Trump will probably be tweeting ahead of the official press conference. I've just had a quick look, Trump actually tweeted about 1 hour ago, so the guy hardly ever sleeps these days. So yeah, a little bit of words of warning there. Overall, I'd say perhaps best unless there's something quite clearly obvious, um, as a setup that materializes. Of just waiting for this afternoon to see what he says. This is also one of the other things, of course, that you probably read about a lot yesterday. Uh, Trump is also signing a social media order, and this came after Twitter fact-checked him. Um, basically what he's trying to do is amend or change a law that shields social media companies from liability for content posted by their users. Yeah, it does bring up quite an interesting concept, I guess, is what if, what if Trump didn't have the use of Twitter? How effective would his tactical approach to modern-day politics be without the narrative or the platform to communicate with Twitter? And I know it sounds ridiculous, but I think he would be severely impaired if he was not able to actually use that as his main form of communication. Now, the whole point here is he's kind of built this narrative around Twitter allows him to be unshackled and uninterrupted in terms of him being able to reach the public directly outside of what he feels is the manipulated media sphere who are all against him. So, um, I do think Beyond that point, the way he communicates has been, for his base, highly effective in terms of him being able to get across lots of misdirection, distraction, all these different things that really have helped him in many ways. As crazy as Kofifi might seem, it's all part of the the madness and magic of the marketing machine that's Donald Trump. And certainly has been, in my opinion, a highly effective and, you know, an unprecedented strategy. But one that I just wonder, if he did lose Twitter, I think he would be massively disadvantaged. So yeah, it could be something interesting to watch, but you know, otherwise it's a kind of a moot point at this point in time. Moving on then, a couple of other things just to get you aware of. Um, we talk about obviously lots of different countries and, you know, the depths of what they're going to in order to backstop economies through this quite unforeseen economic situation on the back of the pandemic. And Germany have basically come out and done more. So if you think about, you know, why are equity markets generally holding up, well, you know, there's a variety of different things going on, but you know, just the magnitude of the central bank and government's responses is large at this point. And, you know, this comes on the coattails of Europe as well, that recovery fund getting that kind of tentative agreement, which was a big positive sign and move for the euro earlier this week. And the euro is still kind of continuing the trend from where we were trading about midweek on the back of that news. But now Germany coming forward and Merkel stimulus sequel. So basically here, Merkel and coalition is set to discuss proposals next week on June 2nd. The focus now on aiding recovery after cushioning the crisis blow. So they're looking at it as in there's two forms of stimulus. There's the initial get it in and, and let's try to offset the initial impact, and then there's let's try to provide a further stimulus or supporting hand to the recovery. And so, you know, here we are, Germany looking to prepare a second phase of stimulus between €50 billion and €100 billion to help that recovery, according to people familiar with the matter. The finance minister and his Social Democratic group want spending at the upper end of that range, but Merkel's ruling conservative bloc pushing back a little bit, looking to be a little bit more kind of fiscally prudent and not accumulate too much debt too quickly. As I said, these two parties and all the officials compiling proposals from the ministries, they'll present them on Tuesday in Berlin next week. But this of course comes on top of the €156 billion in debt to finance higher social spending, €50 billion in Euro Area Liquidity Fund for self-employed people, a €600 billion rescue fund for state-run development banks. So, you know, this again is a top-up, but it kind of further supplements what has been, you know, one of the main forces that stabilize markets after that rout that we had in March. So governments continuing to, to add more and more at this point. And on the central bank side, obviously a lot of people now looking ahead to next Thursday, we get the ECB interest rate decision. And we've had the latest Bloomberg survey where basically they go around and question most of the major Wall Street independent research firms' economists, and they ask them, what do you think the ECB are going to do? And most economists expect an increase in the virus response on Thursday. So turning up the printing press, and in a similar fashion to what Germany's objective is, which is to finance Europe's recovery. And this is what The Economist predict: the ECB will boost emergency purchases in June, and they will do so by topping up €500 billion, and that would take purchases under all plans this year to about €1.6 trillion. Most respondents expect the program to be extended beyond the end of the year, and all said the central bank will reinvest proceeds for maturing assets to prevent financial conditions from tightening. So to make that, you know, in layman's terms, what they're saying is they're going to increase then the size and volume of quantitative easing. That means it's going to go a little bit longer than previously foreseen. Once they end then the active buying of bonds, they're going to reinvest all of the, the kind of principal payments that come on the back of the expiration of those bonds, because there'll be a variety of maturities. So just like the Fed did you get QE in the system, the Fed's balance sheet rises, and then they stop active QE, and then we go sideways for a long period of time, which means QE is still in the system to assist the recovery. They'll continue to be reinvesting the proceeds, and then eventually you get quantitative tightening. That's, that's kind of what we had. And then obviously the pandemic's hit and the Fed's balance sheet's gone back up again. So in a similar fashion, um, the ECB are going to follow that, that kind of method, if you like, is what people are expecting. So yeah, next, next Thursday will be interesting one. Obviously got the ECB looking for an increase for QE. Um, almost 3 in 4 respondents are looking for that increase in their quantitative easing program. They've also got new forecasts they're going to unveil, so that's going to be something we'll be watching very closely indeed. And obviously next week as well, you've got non-farm payrolls, so a particularly busy week on, on on that front. For the rest of today's session, what else have you got from a schedule point of view? Um, not, not too much in the European morning. You've got the flash CPI numbers for May coming out, so the year-on-year expected at 0.1 against previous 0.3%, range -0.4 to +0.5. You've then in the US session, you've got personal income numbers, PCE price index, and you've got the US Chicago PMI also coming out this afternoon, and the Michigan, but this is the final reading for, for May. From Canada, you've got GDP for Q1. Speaker-wise, other than Trump, there's no other major kind of central banks that we focus on unless you're looking at the Swedish krona. There is Riksbank's Enkvist speaking, and that's pretty much it. So I'm going to leave you with that. Um, really, uh, probably the best of the session is still yet to come, as I said, when Donald Trump speaks. No ETA as yet. I'll keep you posted in the chat and on my Twitter account as soon as I have more clarity and detail of when that's going to happen. But that will probably saturate a lot of the market activity for the pre-statement. A lot of people will be sitting on the sidelines. That will come out And depending on what he says, you're either going to get a bit of a relief rally if he's a little bit more conciliatory and he just says, look, I'm not happy, but we want to continue to get the trade deal done and we want to push things forward. I want to work with Xi, for example. I'd look for a more risk-on type response. But if he does come through, he signs that bill about the treatment of ethnic minorities, if he says that I want to absolutely push and fast-track through this bill, um, in regard to Hong Kong and how they're being dealt with, then in that particular situation you'd be looking for equities to just, um, you know, finish this session in a negative sense. Probably further bid then into likes of gold and T-notes. Oil would come under some pressure, and that's the way I'd be kind of looking to approach things going forward. All right, that is it. So have a great weekend. As I said, remember, subscribe to the channel, leave a comment, let Eddie know what it is, what particular topics you guys want to hear about in more detail. Just pick one and he can really dive into that in a bit more information. And then Sam's video on Sunday. All right guys, take care, enjoy your weekend.