Stocks stabilise overnight as tariff dust settles

OK, very good morning. It is Anthony here from the desk at Amplify in London. It's Tuesday, 14th of May. Going to give you a bit of a wrap-up of how things closed. Obviously, as you can see to the side of me here, from somewhat of the bloodbath, it would appear from the coloration of this heat map Obviously a sea of red with a little touch of green down in the bottom right-hand corner. That would be the kind of traditional rotation into the kind of defensives, the utilities seeing a little bit of outperformance. But overall, obviously predominantly red across the board. Some of the FAANG names obviously dragging just generally the market. It was quite a broad-based sell-off, but you some of these larger-cap names down significantly. Apple just shy of 6%, as you can see. Apple, yeah, Apple 6%, Amazon 3.5%, Microsoft around a similar margin. Boeing as well, one of the names which was isolated in the retaliation of the latest tariff announcement coming out of China yesterday, also under some pressure. They were down about 5%, and obviously further struggles for that firm just given the, the recent corporate earnings and other news and issues they've had with that. That that 787. So yeah, it— a down day again, but overnight in Asia, one of the things that has happened is a degree of stabilization. I'll get into that in a second as to the reasonings behind this. But as you can see across the broader asset class mix at the moment, if anything, equity markets have recovered slightly. We didn't continue the sell-off overnight in Asia. Losses were fairly small. Been a couple of comments out of the People's Bank of China, their central bank, that's helping mitigate the kind of continued contagion effect, if you like, in the Far East. And as a byproduct, you've had both US and European index futures here just tracking a little higher going into the, the full kind of European open. FX markets pretty quiet, a little bit of fluctuation of course in yesterday's section, but as far as this morning is concerned The dollar index is basically flat, and that's reflected largely in both the major currency pairs. If you're looking at EUR/USD in the top left, if I just change this chart here, okay, born this morning, that's the chart updates. A little bit negative, about 14 pips, comes after a little bit of a slide that we saw yesterday in the afternoon session. A couple updates on Brexit that I can give you, but Really nothing new in that regard. As you can imagine, Theresa May just under pressure in her position still. Otherwise, crude oil down at the bottom. It is fairly quiet overnight in Asia Pacific session. Quite interestingly, just looking at the price action of the last 24 hours, you can see here we did actually rise yesterday. This obviously irrespective of the breakdown in the trade war, and it wasn't really until the China retaliation came that the market started to dip with the equity sell-off once the cash markets were open in the US. But again, just bouncing off the lows. And as we were discussing yesterday, and I'll repeat shortly at the end of my kind of presentation, there's still a lot of supply-side risk to potential disruption, that is, to supply, helping keep oil supported despite the obvious kind of dent to global demand emanating from the breakdown in the latest trade talks. So that's the kind of state of play at the moment. I'd say it's relatively, uh, it's a little bit of a, I guess, a pause after what has been a pretty tumultuous 2-day session where US equities have come under pressure. I say 2 days, say 1 day from yesterday's sell-off. A few things then, let me get up to speed with what's the latest on the trade side. So having seen the S&P fall 2.4% yesterday We have actually had the yuan recover a little bit overnight. Before I get to that though, one of the things that happened, of course, that helped promote the sell-off was the market was eagerly awaiting what was China going to do in response to this resetting, if you like, of the tariffs on $200 billion goods from the US administration from 10% to 25%. Well, they said that they'd raise duties on some $60 billion in American imports starting 1st of June. Essentially defying the call on Trump to resist escalating the trade war. Trump's been saying the same thing from overnight. Hard to see how he thinks that's going to happen when he himself is being the aggressor in this situation. Interesting comment though that I read out of analysts at Goldman Sachs this morning. They've said that higher US tariffs will drive up the Federal Reserve's preferred measure of underlying inflation. And further escalation could raise consumer prices even more and dent US growth. So I guess it's a, you know, this is the tricky balance that this could have, is that higher tariffs undoubtedly would lead to potentially a more kind of higher inflationary environment, or at least a threat of. And that obviously is completely counterintuitive to what otherwise is a slowing economy that would in a normal circumstance require a looser monetary policy, i.e., a cutting of interest rates. But if the tariffs create this inflationary environment, then you've got yourself stuck in a bit of a rock and a hard place. Not that this is Trump's issue, but certainly for Jerome Powell and his colleagues, this is certainly a big issue. On that point, I just wanted to have a look at— this is the FedWatch, so the federal funds rate and how markets are priced in the short end for interest rate expectations coming out of the US. So obviously the next meeting from the FOMC is going to be the 19th of June. Uh, just to say, you know, in advance, me and Sam will be covering that live on our YouTube channel, so make sure you subscribe and you'll get a notification when that goes live. But on the 19th of June, we're not actually expecting any interest rate change. Obviously, markets will closely be awaiting the latest update from the Summary of Economic Projections, of course, so it's going to be an interesting meeting. But the market is 90% positioned for no change in interest rates. But as you will well know, if we start pushing this out, then if we get to September, that's now about a 39-40% probability of a 25 basis point cut. Take that out to December, and that is the most favored area of where interest rates will be, which is 25 basis points in the federal funds range lower than we currently are. Or if you look, there are actually in fact people positioned a good 100, if not 100 more basis points lower, albeit it's a fraction of what the overall kind of pricing is at the moment. But the point being is that this latest episode, if you like, unsurprisingly has created then all more calls and pricing in to reflect this into the expectations of a rate cut from the Fed later on in the year. Now I did mention though that the Chinese yuan had recovered overnight. Just looking at this, this is a graphic that takes you back. This is basically the last 12 months of the Chinese yuan, and as you all know, the onshore renminbi exchange rate trades within what's called a trading band, which means the price can move basically 2% either, either side of where it's trading at that point in time. Now here you can see though, the dark blue line in the center which typically just sits nicely right in the middle of the trading band, uh, just given what's been happening, has meant that that currency has started to weaken once again. Now, if you remember, it was back at the beginning— or the end, I would say, of last year, the beginning of this year— that was when people were really— this was the right at the precipice of the sell-off that we had in global markets. Around Christmas. That was when the Chinese yuan was threatening with that 7 level, of which we know that the Chinese authorities are very keen to protect at the fear of then acceleration of capital outflows. And so we're kind of getting towards that point at the moment. And so what happened overnight was, uh, the yuan's advance— so actually a bit of a bounce back if you were to zoom this into the overnight session. It's a little flick up of that going against what has been that dip. And that's come as the front page article in a newspaper overnight in China, in the mainland, backed by the PBOC-cited analyst saying the currency will not weaken continuously or by a large amount. That's pretty much as clear a hint as you're going to get, is that basically that's them reiterating that they will intervene in this situation. Should these conditions warrant. And that, I guess, alleviating some of the local concerns. We've already had that, you know, reserve requirement ratio movement in order to liberalize, if you like, some capital off banks' balance sheet to just create continuous liquidity and what can be disruptions that come from these little episodes of escalation in the trade war. So yeah, more steps as we've seen since this, you know, X-ing out the last couple of days, this phenomenal recovery in markets. It's not just a Fed rate story, it definitely is a China interventionist story, and that continues to take place. A couple of other things here. The US, if we go back to the original article here, of course this is about the US is readying new tariffs as Trump says he'll meet President Xi. Now, this isn't particularly new, but so you're aware of the numbers, the Trade Representative's office in the US said Monday that they've released a list of $300 billion worth of Chinese goods that they threatened to hit with another 25%. If that goes through, that would see almost all imports from China covered by punitive import tariffs, essentially. So this is that graphic that we looked at yesterday's briefing. This would have kind of translate into an economic growth impact on China of around 1.5 percentage points, is what's been calculated by Bloomberg on a year-on-year basis. If Trump proceeds with the tariffs, again, it's going to impact nearly all of those imports from China. Under a process outlined by US officials, the new tariffs would not take effect until late June at the earliest. If they were to follow through with this threat that they're saying at the moment. Now, that's an interesting timeframe from the calendar point of view, because at the end of June, June 28th, 29th, in Japan, Osaka, there is the G20 meeting happening. Of that, Trump has said he is willing to meet with the Chinese President Xi. So if anything, if you're now looking at this trade war as it plays out, I think you've possibly— I could be eating my hat at the end of today— but I think possibly we might have seen the most ferocious response to this latest breakdown in talks. Now, the next deadline is not until the end of June, and if you think about it, that's about 6 weeks away. So now all the news is out. Trump can't really go beyond now this latest one, which is this threat for the new 300, and China have come out with their latest retaliation. So there's not a lot here, I feel, that's new that they can bring to the table. So I, I do have kind of a mild confidence here that we're going to see it now, a little bit of stabilization, or what has been a bit of a wobble for markets, certainly US equities over the last 24 hours and obviously the end of last week as well. That might come as a bit of a sigh of relief for any Uber investors, of course, who I think their shares are down, what, over 12% in what, 2 days trading. Anyhow, let's have a look at a few different things. Wanted to give you an update on Brexit, and really the status remains the same. Nothing's really changed here. Theresa May seeks support for Brexit plan as cross-party talks falter. Apparently she had talks talks with the Labour officials yesterday, but according to those familiar with the matter, it was kind of just a catch-up, going over various different things, no real progression being made. So Theresa May will meet her own cabinet later today. She's obviously under increasing pressure to pull out of Brexit talks with the opposition Labour Party and set a date for her departure. And certainly fueling the flame at the moment was those opinion polls that came out at the weekend, which is suggestive that come the May 23rd European parliamentary elections, the Conservatives are gonna get absolutely decimated. So, you know, ever more pressure on Theresa May at this point. She has been eerily quiet, which I think is a little bit unusual. So definitely I think it warrants watching at the moment. I still think the risk of her resignation is small but I would say that that is increasing at this point in time. So yeah, pound not that responsive this morning, but as Sam will show you, we're getting close to the lower bound of yesterday's price action. So technically, a couple of levels of lower support worth keeping an eye on. The other things to mention, I did say oil, and we were talking about this kind of— there's a balance going on at the moment with oil between the demand and supply kind of shocks, trade war on the former, whether it's Nigeria, Libya, UAE, Saudi, Iran, there's a lot going on on the supply side as well. And so at the moment, I would say again, the correlation effect between that of US equities and oil might not be as strong as what we had been used to over recent recent weeks, just because given the latter factors that obviously the geopolitics can change very quickly, and it only takes one Revolutionary Guard boat to block the Hormuz and then all of a sudden you've got a real game changer. So certainly these are volatile effects that you need to keep an eye on when it comes to the monitoring of crude oil. Another oil tanker was damaged according to Bloomberg while anchored in the UAE. And this comes after a spat of attacks on crude carriers on Sunday, adding obviously to the intense situation that's developing in the Persian Gulf at the moment. As a timeline going forward for any crude traders, Saudi Arabia and other key OPEC members will meet for a review of global markets later this week before ministers settle on the group's policy. Obviously, that's going to come in late June. So we are looking for some potential oil minister comments towards the second half of the week. Today specifically, you do get the OPEC oil monthly report, and then you get the IEA's monthly report tomorrow. So a couple of things again for compliance levels and general supply amounts that we're looking out for will be quite interesting for any crude traders coming up. A couple of other headlines we've had, uh, BOJ So if you look at dollar-yen, um, this morning, I mean, it has kind of risen overnight, if anything, in terms of dollar-yen. So some comments out of the BOJ, Governor Kuroda will consider further easing if prices lose momentum. So they continue to kind of reiterate their, their dovish stance if necessary, should market conditions warrant. I think particularly new, but just worth considering. And then over in Australia Obviously we saw last week the RBNZ cut, but Australia chose not to. But all indications are kind of hinting and traders are pricing in a rate cut in the next 3 months from Australia, with a strong chance of a follow-up easing in the ensuing quarter. Now what we've had overnight is some, not major, but some jobs data. The National Australia Bank's April Employment Index dropped to -1 in April, from +6 in March, marking the weakest reading since January of 2016. So one of the things that they were talking about on Bloomberg was obviously this kind of— what has been— if you actually look at the employment situation in Australia, it's been pretty excellent actually. It's been one of the sweet spots, and that's actually kept the faith alive for the hawkish members in the RBA that perhaps inflation will be apparent and be consistent, consistent because of this, the Phillips curve and so on. But what's happened here is we've had quite a radical shift where a significant drop-off in the NAB employment gauge. And as you can see, the last time this was negative, it preceded then what was just 2, 3 months later an eventual interest rate cut from the central bank. And so interesting to see whether or not— obviously people look back at these sorts of things as, you know, precedents for behavior of how central banks have operated in the past. But certainly I think the thing to watch here is, as I said, the NAB employment gauge is one. I wouldn't say it's major. We need to look at more government-led jobs data as well when it comes. But if it follows this similar kind of pattern of employment weakness, then you can expect more people to be erring on the side that it's almost inevitable. It's just a moment of time of when Australia looks to cut interest rates going forward. All right, calendar, and then I'll hand you over to Sam and he can look at the charts. So let me just make this a little bigger. What have we got this morning? German final CPI. So really the these are of no consideration. These are final readings. So let's just track through the morning. UK, you do get some earnings data actually coming out of the UK. Again, would normally be a kind of tier 1 release, something more meaningful, but we know that considerations at the, at the BoE are heavily dependent on Brexit. So we keep an eye on it, particularly as cable's coming close to that lower bound of the yesterday's price, and a weak wage number could certainly ask capitalists to break that lower, which in technical breaches could be interesting. Otherwise, ZEW coming out of Germany again. So this is the analysts and economists' forward-looking expectations of conditions in Germany. Could be quite interesting, um, despite it, I think, being probably not that market moving. Interesting given the fact that this question mark is, is Germany bottoming out now? Is this, uh, rut that they've been in coming to an end, which is going to be quite critical for the fate obviously of eurozone growth prospects? And we do have eurozone GDP coming out later this week. Um, European industrial production also comes out alongside German ZEW this afternoon. US import-export prices and then API inventories, of course, for the oil traders later on this evening. The OPEC monthly report normally comes out around midday. The squawk will keep you updated as and when that is scheduled for release. We normally get heads up about half an hour before. Uh, speakers-wise, you got a Fed voter, Williams, speaking at 9:15, so later on this morning, do be mindful of that. You've also got another voter, Fed's George, speaking at 5:45 as well this evening. A couple of Italian auctions, uh, I guess Again, I just get— given the context going into the Eurogroup meeting on Thursday and the ECOFIN meeting on Friday, where of course Italy is in focus given their deficit targets and kind of fragility of their fiscal and financing situation, these Italian auctions could be quite interesting as well this morning. All right, that is it. I will hand you over to Sam now. There's a couple of earnings updates, so for Germany, Season Group, I believe I saw Vodafone out as well. So I'll pop those in the chat room on Trading Live for the numbers if you needed those. Otherwise, let me hand you over to Sam, and I will catch you in the chat room. Wish you a good day ahead. Thanks very much, guys.

Hi guys, good morning. Hopefully I can get through without coughing too much. You have to bear with me. Starting off with the pound, and like Anthony mentioned, it is actually coming down to that low that we had from yesterday. Worth keeping an eye on how we get along around these levels. And just taking it back to, well, a longer-term view, you can see the trend line that we talked about in the briefing yesterday certainly came into play. And I know this is on a 240, but we had a decent reaction, uh, once we had broken through that. So we had those free tests starting at the 25th and 26th, uh, that low the 9th, and then obviously yesterday breaking through. So sentiment now is starting to swing back around. The euro pound had a decent day to the upside yesterday, as did pound actually in the morning, uh, because the dollar had a slight bit of weakness. Not quite sure why, to be honest, and of those trade headlines I was wondering why the dollar was weakening and turned out to be a really good opportunity to sell all the markets, uh, for against the dollar. Aussie dollar was a great opportunity there. But yeah, with the, with the pound pushing down, if we can, uh, get a confirmed break below this low, which also offered support on the 30th, you can see we're then probably now looking at the low of the 29th on the futures, just below the S1, 129, uh, for 38 would be a good level to look at. On the flip side, that, that trend line for the euro never really came into, uh, into play. Just having a look, see that lower one, certainly not. And then just looking, if I just bring this in, the one from the third— well, yeah, exactly, nowhere near. That small range from last week before the push higher on Thursday has brought a new smaller one as well. And really, it's is the case, I think, for the euro. Just waiting, holding firm before really looking to, to get too involved in this market. You are seeing a touch of dollar strength this morning, but with the euro so choppy around this price point from the last 2 trading days— 2 and a half if you want to include Thursday as well, the back end of that— it's, uh, probably best to, to be left alone, I would say. One market that did, uh, offer, offer a good opportunity yesterday today, uh, and I'll put it on the longer term chart to begin with, was, was gold. And that break above that $1,290 has been so key going back to, uh, let me just remove the pivots, uh, January finally got that break above, uh, and that level, uh, that's had quite good, uh, price action previously, $1,304 or just a bit below that. Let me have a look. Yeah, oh, $1,304.7 on the futures, you can see good support that we found back on in March a couple of times, and then resistance again, and then support again here. You can see before finding a good area of resistance, uh, just yesterday evening. Can we come back down to test the, the, the area from yesterday? Uh, any of those sort of resistance points would be a level to, to keep an eye on over the coming days. I wouldn't be too surprised if it did happen today, knowing gold, but It's not going to be— it would take probably something pretty, pretty special to get us back down to 1290. 1300 not really offering a level of resistance or support either way, but that break above 1290 should start to, to change things again. If we were to come back down, it could be a nice area to look to, to get long and continue this break above what have been a pretty important range. You can see that double bottom from the, the 23rd of April and the beginning of May. And then likewise, there's a resistance of the double top the 26th of April, and then a couple of times not too long ago as well. Talking of, uh, the Aussie dollar and opportunities that some dollar strength gave, uh, in the afternoon, that breakdown, obviously now the, the lowest it's been since the flash crash back in early Jan. Key levels to be aware of for the Aussie, go have a look at these, these previous lows around here. That breakdown did happen, and keep an eye obviously on the pivot as well. But we've had good support here a couple of times before that breakdown yesterday, so we're keeping an eye. And futures, that's coming in sort of 69.70. Reasons perhaps not to take the trade would be just how strong a recovery equities have, but I still do think the sentiment for equities is, is going to be to the downside, so I wouldn't be, uh, too aggressive looking to go long from the, the lows. See if there's a trend line or potential one later on to keep an eye on as well. Price is starting to get squeezed perhaps from both directions for the Aussie, and while volume might not be the highest, waiting for a break either way may well be the preferred one to have a look at. Equities now, and just having a look here, uh, on those longer term— or well, to have a look over a period of a few days going back to really when this continued from last Sunday night where we gapped lower. You can see the trend channel still relatively intact, you know, slightly choppy, I guess, through yesterday. Uh, it looks better on, on the NASDAQ and the Dow Jones, but I still would keep an eye on it. I'd still would have some of these levels marked up should we, we push higher from that. And looking more intraday, certainly for the S&P, trying to identify, well, when does this recovery, if you like, that we've had this morning actually mean something, and then we can start to push higher. Well, you can see that breakdown that we had around 2844. I know that's quite a way away now, uh, and the pivot looks half decent. Those would probably be the two key levels that I would want to see broken before I'd really start thinking medium term that we're starting to push higher. You can see that pivot, uh, good resistance from last night, uh, and I guess, uh, a couple of tests around that area. And within the pivot you've got couple of reasons perhaps people might look at that as a resistance. So if that was to go, and along with that being the, the low that we had on, on the 10th as well, on Friday, pretty key level. And then if we were to get above that 2844, previous low the day before the real breakdown in the afternoon that we had yesterday, and I want to keep an eye on— interestingly, double bottom from yesterday as well. So around 2802, 2800 which offered good level support. A break of that would certainly, uh, get people interested again, and we can potentially come— actually, I think we've got the chart marked up here, so I'll just bring this into picture. You can see this key area marked up, uh, around— if it was to come in today, $27.77, not too far off the 200-day moving average, would be in the mix there. This trend line that comes back, you'd also have some support going from the 25th of March. So quite a key level, and you can see the, the respect to each one of these previously. And with 2800 just potentially offering a bit of support yesterday, uh, worth keeping an eye on, on how price action offers opportunity later in the afternoon. Uh, just to have a quick look over, uh, the calendar again, just to reiterate that the interesting times with the pound on those lows. You know, any trades you probably want to be out, I guess, by 9 o'clock ahead of these, these data points and potentially seeing if there is a leak of some sorts, if there's a sort of a forward run on, on that. Also the 10 o'clock German and European data, so a relatively busy morning around that before it dies down into the afternoon. So should be some, some decent opportunities, I think, for the US with the equities. I wouldn't be too excited about getting long just yet. I think that pivot would, would have to go before you could start looking for, you know, a long intraday. And then 2844 to go as well before medium term, maybe you can start thinking things are turning, uh, as well. Any questions, as usual, please, uh, do let us know. And if I don't speak to you, hope you all have a great trading day.