Morning Briefing - 31st August 2018

Okay, very good morning, Friday 31st of August. Hope you are well. Just a quick overview of the things we're going to cover. There was an Oval Office meeting from Donald Trump, a lot of comments coming out of that, particularly on the EU, particularly on things like the technology names, on corporate tax, all different types of things. So we're going to look at that. He's been calling out Europe as well, ramping up the rhetoric, and we've had a little bit of a risk-off move this morning, so we'll look at that in more detail. We're going to look at Apple as well. Some news about Warren Buffett adding to his stake. And this comes ahead of their keynote speech in September when they're unveiling new products. And then we'll have a look at the kind of day ahead with a little look at the emerging market currencies as well. So that is what is on the agenda for today. So starting off then with things, we had a fairly contained Asia-Pac session. One thing is, is that the Oval Office interview with Donald Trump did occur last night. The Asia participants decided to really look beyond that. What we did have helping sentiment at least counteract any negativity emanating from the president was the fact that you had Chinese data overnight. This was kind of their main data release of the week, it being their manufacturing PMIs. Both the official and kind of non-official reading. And essentially, manufacturing sector growth picked up in August. You can see here there was a few question marks about the kind of graduated weakness that we were seeing apparent in this data, a little bit maybe a net effect of the trade war rhetoric really starting to hit on the Chinese economy. We've seen that with the value of their stock market and the value of their currency. But the manufacturing sector growth picked up in August was the data overnight. But do note, caveat, external demand notched a fall as Beijing sought to bolster banks lending to exporters and infrastructure product projects amid an ongoing trade war with the US. So, uh, expansionary territory. And as you can see here, just looking at the metrics themselves, a little bit of a turn of what had been quite a significant fall, uh, in the previous readings that we had seen. So Moving on swiftly though, because we've had a little bit of a change in atmosphere, if you like. Not sure if it was coordinated with Will walking in with his fire-red trousers this morning, or whether or not it was Europe. Don't worry, I'll get Will to walk past the camera in a second and he can show you the trousers. But one of the things here is that as the UK and Europe have come in and digested really what's happened, overnight from Trump's comments. I think there's a couple of things to be aware of. One is that, you know, this isn't just like a one spark move. I think a lot of people bringing in not just a news flow but the fact that it is the 31st of August, don't forget. And I was just looking at the S&P this morning and looking at the performance over the run of the best part of August. We've rallied about 5%. Obviously we've hit fresh record all-time highs. And so, you know, taking a little bit of profit amid what has been, you could argue, a little bit of an increase in the rhetoric from Trump, but also some continuation of deterioration of the emerging market situation. We're going to look at that in a second. Currencies like in Indonesia through to India through to Turkey all still seeing some relevant movement. So how much of this is a little bit of profit taking? Maybe if we just go into the month end, it could also be just contributing to a little bit of this move. It's mildly risk-off. I wouldn't say it's dramatic at this point, but certainly as UK and European participants have stepped in, maybe just reacting a little bit in that risk-off fashion. So equities, stock futures, a little bit of negative movement. Consequently, gold is just rallied up to around an $8 gain. We've managed to break our 1 already, and the US 10-year also up about 4 ticks or so on the session. So having a look then, what has Trump been saying? Well, this is one of the headlines, and then we'll get down to the crux of his interview in itself. Um, calling out Europe. I like the comment actually. Trump said The EU is almost as bad as China, it's just smaller, and rejects EU zero tariff offer for cars as not enough. He also then has been talking out about China. Bloomberg sources stating that Trump is to back $200 billion China tariffs as early as next week. China to respond then with duties of $60 billion of US imports. So just when you thought it We had had a little bit of calm return. We were talking about a week ago about the kind of olive branch the various negotiators on both sides of China and the US brought back to the table to recommence talks. Well, a week later, as such is the fluidity of these kind of discussions, Trump has kind of just ramped it up again, being the aggressor in the conversation. Talking to a couple of the interns this morning, and I think there does need to be an objective view as to what is Trump's political agenda. And certainly I think it's, you know, time is ticking until the US midterms, which obviously occur at the beginning of November. So he's got about 2 months really to really cajole sentiment in his favor. So the kind of America First mantra, I think, is going— you're going to hear a lot more of it. The question is, is how much of this is, is ultimately new? Well, firing a $200 billion number at China, we've heard this already. And then him calling out Europe, although it's— he talks about Europe to a much lesser extent than China. Again, he said similar things before. He has said the EU is as bad as China. Multiple occasions in recent weeks and months. So no doubt a little bit of risk-off kind of flavor to the morning, but how sustainable this will be— be more interested, I guess, when the US come back in and we start to see just all market participants in the marketplace, how it might react. From an equity point of view, I think things do look a little bit susceptible. I mean, the DAX obviously, um, I mean, those who look at the DAX will know its inherent volatility. This morning it already dropped in two quick succession kind of moves, the breach of the initial late evening hour before Eurex close low, and then when we broke the subsequent low from yesterday, it just saw a knee-jerk spike. And obviously this is, as was yesterday, a gap fill from the weekly price action in the DAX. But as we sit around the lower bound of that price level, um, this kind of phase of consolidation, I guess, which really was the, the range of last week on the downside, would be quite interesting to watch. Uh, but US, I think when they come in, is going to be more dictating proceedings. And what I'm quite interested to see is just given this kind of renewed upside that we've had You know, if you talk about this week, we've just punched up to record highs starting all the way back to the UK bank holiday at the beginning of the week, and we've just kind of continued thereafter. So it being month end, there being a couple of negative fundamentals in the marketplace on the intraday, a little bit of a pullback and some profit taking wouldn't be wholly surprising. I guess looking here at the S&P, the first point of support that's going to be interesting is really the, the kind of weekly low. We've got close to testing it in yesterday's session, that being the level down around that 94 in the S&P, which was also going back to the beginning of the week on Tuesday. So if we get down to there, it could become interesting. See, from a point of view then of the next price points going scaling down from here, other than the pivots. The S2 just above around that consolidation there that we had on Monday at around the kind of holiday thinned, given we were out the markets on that session in the Asia session itself. So potentially then, I guess it's, you know, could there be an opportunity to get long again following this prevailing trend that's been occurring? That support point I think is going to be quite key to watch around that 94 in the S&P, and I'll be looking for any kind of synchronized test at those support levels across the major 3 US indices to how violent potentially any drop, if it occurred, could be in the US equity market. Now, definitely not a bear on US equity markets. I just think for the intraday it could be susceptible for the multi— kind of weak look outlook, I still think that we can go higher. So again, just kind of playing it accordingly to objectively on the day what you're seeing. And then obviously monitoring the other risk assets. The yen is firmer this morning, gold is up, T-notes are around their highs. So just keeping an eye on those kind of correlations to get a bit of a feel for that as well, I think would be prudent. Okay, quick look at the Trump interview. Quite a nice article from Bloomberg where they basically outlined the various different things which he was commenting on. So I'm not going to go through it in great detail, but just to give you an idea of what was covered: Trump threatened to pull out— pull the US out of the WTO if it doesn't shape up. So again, this sounds very threatening, but he has said this before, so it has to be taken in consideration. And I think markets are fairly comfortable with this. Trump says the EU offer for no auto tariffs is not good enough. Trump says US much stronger than China in trade disputes. He says no regrets over appointing Fed Chair Jerome Powell. Remember, this was a point of which apparently in a private gathering he was very critical of the interest rate— the interest rates conducted by Powell so far and the hikes that are anticipated going forward in September to September. However, he's kind of clarified that point that he's got no regrets. Calling out the technology sector again, calling it an antitrust situation with the big tech names. Very disappointed in Erdoğan over the situation that's happening with that pastor, which kind of has been at the epicenter of this kind of fallout in the foreign policy between the two countries. Still inactioning patience as far as North Korea's Kim Jong-un is concerned. So really, when you go through this, he covers, he covers a hell of a lot. He even covers the Cohen payments to the porn star about alleged misdemeanors that happened in 2016. But the point being is that really here, to me, there's nothing new. You know, everything here in isolation, if this was President Obama several years ago, it would be shock horror and there'd be a dramatic fallout. But ultimately, you know, this is like reading the latest script for an episode of EastEnders or something. It's just firecrackers everywhere you look. But the point is, people are now used to this. This is the new norm. And although all of these in isolation sound fairly spicy, the price— the, the fact of the matter is the market is very much used to this. So yes, a little bit of risk-off this morning. Is this ultimately new information? I don't, I don't think it is. I think it's just repetition of what we've heard before. And as I said, good opportunity then to take some of those longs in the market, book some profits into month end. I think might just have been a bit of a byproduct. So I don't think it's done and dusted that you can write this down day off is completely risk-off at this point. The other thing though that could counteract that is the fact that emerging markets are still under an immense amount of pressure. The Argentine peso sell-off spilling over to the rest of the EM kind of FX complex. This is what we're looking at when we look at the kind of benchmark barometer to kind of really capture all of the sentiment, which is the MSCI Emerging Market Currency Index. And you can see here this with mapping the Argentine currency, and they've been coming under a stark amount of pressure. Now, this isn't just a case of the Argentine currency moving. Here's the lira— hits nearly a 3-week low, as you can see. And then you've got the Indonesian currency falling to a 3-year low. The Indian rupee has hit a record low. So this is a multi-dimensional kind of move that spilled over. And if you're looking for this contagion effect, kind of the thing that we were talking about with a risk of, you know, when people often talk about European political populism and things like that, this is the fear that can happen. Because then if we get coordinated selling in this geographic region, the And as far as the impact that this can have on kind of longer-term investors in the market, portfolio managers and so on, you know, things need to be readdressed or recalculated should the situation become negative enough. So it is getting to that point. And this could be, again, another key concern outside that of just the headline Trump noise if this does materially worsen further. So this does need to be monitored, albeit it is from a media perspective a second-rate issue, it seems at this point. One thing I just wanted to cover quickly as well is we had an interest rate move from the Argentine Central Bank yesterday. So I just thought I'd quickly cover off the spectrum of interest rates across a kind of a cross-section of different countries. So the Argentine interest rate at the moment is 60%. Venezuela just short of 21, Iran 18, as to Turkey around a similar region. So, you know, it's just quite incredible seeing, uh, particularly some of these emerging market areas of the levels of which they've got to with obviously, uh, the kind of exponential rate of inflation that's been apparent, particularly in the likes obviously of Venezuela and so on. But yeah, just to put into context, comparative to kind kind of the developed and traditional kind of core Western markets, which we're still basically at record low levels. So yeah, something that's quite interesting. Other things then that, that's to be aware of. Now this comment sounds sensational, but obviously Errol Lewotny is the Austrian central banker, so inherently has a hawkish stance He has said this before, so this is largely in fitting with expectations, but just quite interesting commentary in the press this morning that Novotny urging the ECB to hike its deposit rate again. Now, obviously, this kind of timing was outlaid in the most previous or the most recent monetary policy statement from the ECB. This is when they created this new timeline and terminology of an interest rate hike through the summer of 2019, indicating for the markets then probably Q3, Q4. But Novotny kind of already talking up this aspect of rate hikes, but priced in. Novotny is a hawk, we know that. But an interesting comment nonetheless. The other thing is, from a single stock point of view, you know, a lot of questions obviously this week having hit record high territory in the likes of the US indices. The question marks obviously inevitably come. Is this the top? You know, have we hit now the peak in the US equity run, the bull market, the longest phase on record, and so on and so forth? Well, Warren Buffett has just loaded up on some more Apple shares. He said that the iPhone is enormously underpriced. To give you a bit of an idea then, I think it's 5% he now holds of Apple. In terms of as a shareholder overall. So he's— I think he's one of the biggest now, in fact, from a monetary value. His investment is worth more than $50 billion in Apple. Now, obviously, Warren Buffett, a lot more, you know, kind of longer-term equity strategies that are being applied with the way he kind of operates. But certainly, if you were looking at Apple and we're hitting these kind of real key milestones of record valuations at these kind of trillion-dollar levels, and you're thinking, wow, is this sustainable? Well, you know, when you start seeing these big players in the market still even at this valuation loading up, you know, is this a bullish sign? You know, and looking at Apple, there's more news because they've— you know, this is all part of the, the Apple religion, if you like, if I can call it that. The postal notes went out yesterday, the invitations in their gold envelopes about save the date. I think it's September 12th is when we get the kind of keynote speeches we do every year from Apple, and I couldn't quite believe it actually. It's time for a new Apple iPhone. Not that we're going to get a new one, of course. This is when they bring out the Plus version, the tweak to the existing one. So what are we expecting from the Apple iPhone event? Well, it's not an iPhone event. That's what Apple, I think, are trying to line up because they're trying to look for a push towards capital expenditure in other areas in order to diversify their income. So the kind of— given such an iPhone-focused event on the 10-year anniversary and the unveiling of one of the more innovative products at least in the iPhone series that they've had in a while. I would imagine this is going to center more about the other products and also particularly then their service-driven apps, which is the kind of fastest-growing area. One thing of course that we have had is just looking at Apple specifically, because I know talking to a few of you who are invested in Apple personally, obviously Samsung have brought out the Note 9, which which has a larger screen. And apparently the iPhone Tweak is going to be a cheaper model of the iPhone X using lower-priced components, so they don't have to pay $1,000 for the phone, which was a big barrier for some. And then also making a larger screen version of the iPhone X, so just giving more flexibility to kind of scale— scales of price entry points for the phone. But quite interesting there for Apple, some news that have been coming out. Quick look at the calendar then for today. Um, the calendar is quite lengthy, but you know, in realistic terms, let's go through and see what actually could be meaningful for market direction or potential changes of sentiment. And really, from a European morning point of view, the main thing that you'll need to focus on is the eurozone CPI flash estimate for August. That's coming out at 10 o'clock. That's kind of the main thing on the agenda for the morning from a schedule point of view. And then in the afternoon, there's no major 1:30s out of the US, but you do have the Chicago PMI. The Michigan sentiment number is the final reading, so that's a lesser important of the two releases that we get, but the Chicago PMI would be worth watching, of course. All in all, I would say there's little actual risks here. We'll see, the Eurozone CPI could be interesting, but more so, I guess, the general, uh, direction of the day is likely to be more derived by, I think, when the US come in, interpretation of, um, the latest comments out of Trump, obviously the, the type of ramping up and the renewed rhetoric on calling out the EU as well as China. So the trade war situation. We've also— not forgetting, the press haven't really touched upon it that much— we've still not secured a NAFTA Canadian inclusive deal yet. So there could be some loonie volatility as well, because ultimately they were pushing to get the deal over the line. Progress has reportedly been made, and that hasn't occurred as yet. So let's say they don't, then one would imagine then potentially some further weakness for the Canadian currency could be on the cards. That's another thing to potentially look for, um, Brexit-wise. I mean, are we expecting anything? Well, no. Um, if there was going to be something, I think you've really seen it this week. We obviously catapulted higher in cable, and yesterday— well, let's just have a look at the price action. Because we, after the move higher that we had, which was obviously very aggressive, we kind of consolidated. So not expecting any real new news coming out. Obviously my eyes will be peeled for what kind of new dance move Theresa May wants to pull out to see off the week. I'm not sure if anyone caught the viral new video last night, but wow, special doesn't even begin to to explain. But I would say here, I guess, looking at the pound, it's not particularly too much of interest from a news perspective. As I say, not looking for too much, uh, you know, let's see, we're coming to the top end of, I guess, some of the recent price activity here that we have had, uh, I guess from the range, which with that kind of trend line, maybe, yeah, having a look here around 1.3033 if we're going to move higher. Contingent on maybe some dollar weakness. No reason why we couldn't see another little push to the upside. If that was to materialize, then obviously you've got, uh, well, looking at these highs here previously, we've got a target then, the, the Wednesday snap high on the pro, uh, kind of development on the Barnier comment high, which is pretty much tying in with the R1 and the 1.3050 mark, then 64 on the upside. Before 78R2 would be how I'd approach that, as levels on the upside under those conditions. All right, not gonna talk anymore, gonna let you guys get on. So have a good day. I'll be around and available in the chat throughout, so any questions just let me know. Happy to help, of course. All right, have a good one. Cheers.