Stocks Continue Recovery following US & Mexico Talks

Hi guys, Tuesday the 11th of June, first day back in the office since Thursday. Obviously we've had Piers on the briefings and I was watching them on Friday for the non-farm payroll preview and then yesterday, and there's probably no one happier that the, the non-farm number was as bad as, as Donald Trump. As of course everything seems fine again now. Let's have a quick look over the markets before we come back to this guy on my right-hand side, uh, Boris, who is well in the, the lead of the, the Conservative leadership race. We'll have a look what that means for, for the pound as well going forward. But having a quick look over the markets, obviously Just saying there how happy Trump must have been with the, the poor, uh, non-farm number. S&P now, I mean, it's— I know we're, we're below yesterday's high, uh, but percentage-wise from the all-time high, it's about 2, give or take, yeah, 2.3% on the futures, which is incredible, uh, considering just how quickly we have pushed on. And you can see that win streak coming to a brief end on the futures yesterday, but 1, 2, 3, 4, 5 days in a row before that has really helped push things up. And the Dow Jones is, is the same in that reaction higher. Well, the NASDAQ also. So one to keep an eye on as we go through the, the week. And is this going to be sustained and we do get another test of those highs? Has Trump had everyone in his back pocket as he, you know, plays around with these, these trade deals and then last minute comes to the rescue only to see things going higher. I was also looking at a tweet from, from Pears yesterday in the aftermath of the briefing, and the last sentence there was the one that caught my eye: 3 rate cuts in 2019. So if we go back to the ADP number last week and the result of that being the worst since 2010, then it was priced in that there's going to be 63% chance of 3 rate cuts, which is, uh, obviously just incredible how, uh, that was priced in having been only 2% a month ago. But yeah, 3 rate cuts, come on. I think 2 cuts max, and I would agree more so with, with Pears there. But with this being priced in and, uh, obviously the, the Mexico and US deal, or the increase in tariffs postponed, it's all helping here stocks recover, uh, you know, briefly above 2,900 yesterday, uh, on the futures headlines, uh, overnight. Well, you had the, the, the, well, really the, the aftermath of the weekend where everything gapped higher, uh, that continued, and markets in, in Asia continued their relief rally, if you like, or just the correction of the down move pricing in these negative trade headlines. Uh, Chinese stocks were boosted by the prospect of fresh government stimulus. The CSI 300 was up 2.3%, so really big recovery there. The Hang Seng 0.7%, and Australia's S&P/ASX 200 gained 1.2%. Toko's topics just up half a percent, just. And of course that followed through, uh, to Wall Street yesterday, and we finished, although relatively flat, we did push higher in the morning, obviously helped by this rally in Asia. Worth obviously keeping an eye on in, uh, 9 minutes or so, the cash open, uh, for European equities, which likewise with the US have seen a nice recovery going back to, uh, the 30— well, the end of last month and the beginning of this month where we have pushed on. We'll have a look at some levels more technically speaking shortly, but you can see just where we're trading now is, is, uh, well, just I guess made that gap close. So this was the level we were looking at at the back end, back end I should say, of last week, and we finally not too long ago filled that gap. And you can see the first test of it acting as a strong resistance level, uh, but definitely one to keep a close eye on should we push back above there in 9 minutes or so. Um, if we go back to, to the Mexico trade, I'm sure, you know, this was, was covered throughout the day yesterday, uh, as well. Uh, really, that delay, which, you know, certainly the New York Times and other, uh, publications were suggesting that the, the idea to delay this was all put back into March anyway, which, uh Obviously Donald Trump came out and vigorously denied, but those tariffs, which of course were meant to be put in place on, on Monday, so yesterday, uh, they consisted of 5% tax on all imported Mexican goods and it would have risen at regular intervals to 25%. We did have this, uh, certainly Navarro at the back end of last week suggesting it was going to be delayed, and Trump coming out as well, certainly all over Friday. When I was, you know, on the, on the plane, he was very much, you know, on the plane to where I was going on holiday, he was saying how it was going to be delayed. And they were— they had promised to step it up. And again, last minute, Trump saves the day. Well, that's what he will obviously want you guys to think. But I do still stand by what I've said before, that I do feel he has this stock market just in the palm of his hand. You know, it's going to pick up into, uh, you know, Q3 and Q4 of this year with the presidential campaign. It would look very, very bad, especially with, you know, the amount of imports coming from Mexico, uh, that if there was no deal, and it effectively would still, you know, hurt the, the American, uh, household. I think there was a study, uh, done that would be about $900 a year. Well, that might not seem too much ahead of a presidential campaign that would always hurt him. So I think it was inevitable that this one was going to get sorted, as will the one with China. And he just wanted to buy a bit of time because I think if stocks had continued to go higher from their all-time highs, uh, that we had— well, let's just bring up the chart again. See, we peaked, if you like, on stocks back in the 1st of May. If we continue to go on and on and on, well, there's gonna have to be a pretty big re— recovery of that push higher, or correction if you like. And last thing Trump is going to want is that to be in October, November, December, when, you know, this market then actually would have to come back down. And if we had had what we had here back then, or in, in the future, then obviously that's not going to look too favorably on the Don himself. Interestingly, just, uh, pushing away from here, the dollar just trying trying to strengthen a touch, and that is weighing on, on gold a bit here, which has just come to test the low of yesterday. We can see that gap lower as money flying into risk or out of safe havens, and that has just, uh, led to the gold push down. But also this dollar strength perhaps is weighing on, on things a touch. You can see obviously the reaction following the weak non-farm number pushing things higher only to snap back down. So worth keeping an eye for any gold traders just on those lows. Equities not really batting an eyelid yet, but of course keeping an eye on the DAX around 8 o'clock for, for how that, that comes along. So with the, the Mexico and US deal, if you like, um, post-agreed, or the tariffs, uh, delayed, um, you know, Mexico have agreed to deploy more National Guard troops. So before, previously only 1,000, now we're looking more at 6,000, or they're pledging to do so. So Trump is happy enough with this for now, um, and I think for, for the time being it's almost a case of, okay, you know, that story is now going to start to become old news. Keep an eye on, on maybe some Trump rhetoric. If he starts getting a bit more hawkish and aggressive on the situation in a few weeks, you know, maybe they haven't done what they promised, etc., etc., then there could be some good trading opportunities. None more so than the peso, which of course gapped higher over the weekend. Really big gap here. You can see this is the close that we had back on Friday and then the open on Sunday evening, uh, really big push higher. So if that was to, you know, deteriorate, if you like, well, what an opportunity that would be for a reversal. And of course in stocks and safe havens, uh, as that risk move would obviously have to unwind as well. But the peso, another positive start to this morning. You can see just coming up almost to the higher close that we had back on yesterday, uh, as well. I'm sure you have else have seen it this morning, and you know, there's talk of it over the weekend and the overnight as well. Trump saying he will raise tariffs if Xi fails to meet him at the G20, uh, that meeting taking place— what we now the 11th— so taking place in 17 days, June the 28th and 29th. There has been no real public indication that, um, that Xi is intending to avoid Trump at the summit. But again, just with the, the way these things go and any tweets from Donald Trump surrounding this issue, just worth keeping an eye on. But at the moment, it's not in— it's not looking like he is going to avoid. However, if that was to develop you know, you would look to be short in certainly US equities and Chinese equities, or equities in general, and then perhaps looking to get long government bonds again, which I can see have come off a tiny bit from Monday. But just as we're looking at the charts now, or I am, I should say, the Bund is on the higher the day, as is T-notes, both with their pivot levels acting as a bit of resistance as we come into the European open. Um, so yeah, Trump's, uh, threatening to slap tariffs on another $300 billion worth of Chinese exports if there is no meeting at that G20, uh, in Japan. In, in typical Trump fashion, he, he came out with all these, these comments here. I think he initially did a phone interview and then was, was tweeting as he does. Um, I think he will go, and I think we're scheduled to have a meeting. I think he'll go. Trump said in a phone interview with CNBC on Monday, I would be surprised if he didn't go. I think he's going. I haven't heard that he's not. We're expected to meet, and if we don't, that's fine, and if we do, that's fine. So classic Trump. And he did go on to, to make more comments about how they need a deal and all of this stuff as well. And I posted this, this article in the morning research, um, but you can see here Another comment: if we don't have a deal and don't make a deal, we'll be raising tariffs, putting tariffs on more than, uh, we only tax 35% to 40% of what they said, and they had another 60%. That will be tech. So the room for more hawkish comments is there. Uh, I think that's only gonna really follow through should there be any indication that, uh, Xi is not going to attend. But I think for now he's going to— they're going to have a chat But that could be a good opportunity into the back end of the month, how that develops. Uh, does Trump necessarily want to, to, to get this deal over the line just yet? Or maybe as we come into the heat of the presidential election for 2020, well, that's when he really starts to step it up, finds that last minute deal just as we come into voting, and timing that stock push above these all-time highs could be the trade, uh, to do. Just a quick look over, uh, as well at that, that non-farm reading. You can see 75,000, uh, was what came in. Yes, it, it's, it's bad, but in terms of stock markets, it was a good thing. It was always, uh, a tricky one to trade stocks on, on non-farms anyway. Uh, the, the bad number— does this mean, well, the economy isn't doing well and surely we should start coming down? Uh, or if it's bad news, well, really it is good news. And you can see here, 1:30 that's the reaction we got. We came lower, but the idea that actually now surely we are going to start pricing in these rate cuts for real— what an opportunity it was to buy. Gap higher over the weekend. And you can see from the non-farm payroll release, or the low of that following the 1:30 on Friday, we're up 1.7%. So decent recovery. And I did see a couple of Donald Trump tweets regarding the Dow Jones having the best week or something of the year, or the second best week of the year. I guess that wouldn't be too hard when we did have the, the push lower from May. But he seems happy enough at the moment. And, uh, certainly for the remainder of the week, just having a look at the, uh, the calendar for the remainder of it, I would, I would favor still the Stoxx 200 to push on. I don't see right now them necessarily having a bad end to it. I know we're still early on Tuesday But as things have progressed, yes, we've got the Wednesday inflation numbers, which will of course be worth keeping an eye on. And then we've got the Conservative leadership race first round on Thursday, but that's not really going to have an impact on risk, I would say, unless— well, I'd say that would be more down the line. As we move on to Friday, you can see the US retail sales as well and the manufacturing production. I think even if they're, they're bad, again, you're just going to see a case of, yes, stocks come lower only to, to go higher. So negative trade talks will be the reason, if there is any, for us to, to come lower. But for now, it does certainly seem like following the weekend, the only way, uh, is, is up, uh, shall we say. Elsewhere, uh, Brexit, obviously the, uh, the, the right-wing Tories. You may have heard this, I've got an article here on FX Street, and obviously Ran Squawk in their rundown, they mentioned it, so it's worth keeping an eye on. The right-wing Tories' 92 Group Hustings recently held non-binding votes to gauge the popularity of the UK's 10 Prime Minister candidates. Of course, over the weekend, these candidates either put their, their name in the hat or withdrew if they didn't have enough support. So we came down to these 10, and the outcome is no different than general market consensus that favors ex-foreign minister Boris Johnson to become the next PM. He's odds-on with the bookies. Uh, it is worth noticing, noting though, however, the, you know, the last few leadership races, whoever's been the initial favorite actually hasn't won. But it does seem that it's pretty much nailed on for Boris to to get the nod. And of this poll, you can see he got 34 of those votes. Dominik Raab, not even a close second, 18. And you can see as it trickles down to the bottom here, these guys very much not in the race, as it would seem. We've gone over this chart, if you like, from Guido Forks. I know if you don't follow him on Twitter. It's definitely worth giving, uh, them a follow. And this is just all the, the PM, the Conservative PMs who have put their sort of backing behind each nominee so far. And you can see Boris Johnson— you might not be able to see because it is relatively small, um, let me just zoom in on that— not able to. Boris Johnson has many, many more than the next, uh, in line, which is actually Michael Gove. According to this. So you saw that, uh, 1992 Group Hastings, sorry, uh, had Dominic Raab second. He's fourth on this list. But, uh, yeah, Boris Johnson, uh, way, way in the front with backing of 67— 60— or well, 63 of the— of those MPs. Uh, Michael Gove way down, uh, in second place on 30. So what does this mean for the pound? Uh, I've, you know, we've had this recovery, if you like, over the last few days just because of the dollar weakness, but it hasn't got away from itself, has it? In, in fact, it's, it's only just back above, uh, the— well, I suppose it's nicely above 126, but not by, by much. Of course, that 126 on the, the longer time frame, you had the trend line that came into play, you had the previous low of last year as well. And let me just get that trend line on, uh, on the trend. Here we go. So as it does look like Boris is, is going to get the nod, what does this mean? Well, look, if no deal really starts to pick up, I think we still have to come lower. I've been for certainly the beginning part of this year a pound bull However, that has drastically turned, and a lot of Boris, you could say, is priced in. But are you really going to want to do a deal with the devil, if you like? We did see some comments from The Guardian overnight saying EU sources indicating that the idea of Boris Johnson in the European Council is likely abhorrent to some EU leaders, with the source actually also critical of Dominic Raab. So Whether you are even going to change any deal or not remains to be seen, but I think it is pretty, pretty clear that it's going to be a struggle either way, whoever gets in. And October 31st may well again be pushed back. The, the Conservative lawmakers, just to go over the run-through again, will hold the first round of voting on Thursday. To begin that narrowing of the field. And of course yesterday we had the, uh, this, you know, the leaders sort of proposing what they would do should they get into, into charge. And I actually got quite a few, um, uh, WhatsApp messages from, from my, from my mates who they see me as their sort of go-to on, on Brexit and markets and trade and all this. And a lot of them are massively happy with, with Boris Johnson, with the idea of increasing that 40p tax bracket to, you know, above 50 to— I think it was 80 off the top of my head. And I know they perhaps, you know, they were saying, oh, I definitely vote for him. And obviously while that's not the case, it would be the Conservative members that would do so. Certainly from the idea of public backing, just doing that has helped push him further. And maybe the you know, the public image of him, which isn't that great, you know, might help sway things slightly for, for the future. But it seems like it's nailed on that Boris is going to get the nod. Where we go from here will evidently come down to the no-deal chance of that increasing, or is there going to, to be a deal as well. Uh, elsewhere, let's have a quick look at the, uh, the calendar for today. We do have some UK numbers out this morning. Yesterday the GDP weakened, which obviously helped weigh on the pound a touch following that, uh, 9:30 release. However, we did recover into the back end of the session, and we're not too far away really from where we were before that 9:30 yesterday. Usual slot as well today for the employment, unemployment rate, employment change, and the average weekly earnings including and excluding bonus. So that's always worth keeping an eye on. But as usual, as with recent times, good or bad, unless it's catastrophic, focus is very much going to be on Brexit for pound-related markets. Into the afternoon, we have May data from, uh, from the US for the PPI final demand. Worth noting, of course, as well, the UK data is from April, so relatively old. So I think the reaction will be short lived. Uh, into the afternoon it gets relatively quiet from a data front usually and historically. I mean, when I started trading back in, in 2014, I was always told don't really get too involved on a Monday and Tuesday post-nonfarm payrolls. Coming in this morning, reading the headlines, choppy market conditions, and really it looks like it's going to be a case similar to that in the FX markets where not too much is going to be going on because of that aftermath from Friday, and things will start to pick up inflation-wise and retail sales Wednesday, Thursday, Friday. This evening we do have the API numbers out of the US for the, for crude oil, so that'd be worth keeping an eye on around that time ahead of the DOE's tomorrow. We've had a half-decent recovery in oil, but the move lower has been significant. But if we were to get a follow-through higher over the end of the coming days, it's only going to help stocks push on as well. We do have some speakers, mostly out in the morning, or all out in the morning from a scheduled point of view. Novotny has already come out, nothing really of note. We're keeping an eye certainly out of the UK at 8:30, and then Bank of England Saunders at 10 o'clock as well, and Tenreyro speaking at Monetary Economics Conference. Quick look over the charts to wrap things up before I let you crack on with your day. The DAX, 10 minutes into the open, choppy as usual. Uh, you can see here we went lower to come higher. I'd just be keeping an eye on that high, the— where that, that gap is. Above that, you might get a relief, which is going to help stocks across the pond push on as well. Gold, which we talked about earlier in the briefing, pushing lower. We really key level of support. We're keeping an eye if we were to push on for those previous morning session lows to act as a potential level of resistance, uh, as well. For now, uh, be keeping an eye on the DAX to, to lead the way, focusing then on US equities into the afternoon, but looking for areas to buy. So looking at the S&P here, should we get a retracement, um, put this on the 15-minute, you can see the previous high of yesterday evening and the pivot is worth keeping an eye on, as is this low. However, the amount it's been tested, I'd be just a bit more cautious. And any chance to get around to S1, uh, and which would also be the gap fill on the futures, I think would be a great area to look to go long. As it stands, any questions, as usual, please, uh, do let me know. But I hope you'll have a great trading day.