Trump Points Finger As Tensions With China Rise

Okay, very good morning. It's Thursday, 21st of May. Hope you're doing well. My name is Anthony Cheung. I'm the head of market analysis here at Amplify Trading. I'm going to run you through specifically some of the market fundamentals ahead of the European Open. I'll leave the technicals for you guys to deal with yourselves, but any questions on that front, feel free to leave a comment on the video on YouTube and Sam, one of our traders, can pick that up. Um, but just having a look at the charts then this morning and getting straight into things, let's just have a quick look at what's going on. And we had a marginally positive close, uh, on Wall Street. However, healthcare, a little bit of underperformance, probably just further digestion of that Moderna turnaround in terms of the vaccine trials that saw their stock price come off significantly. And some of that initial kind of almost euphoric response to that news that we had on Monday reversed. Uh, and in the Asia-Pacific session, things have soured a little bit, and this comes amid ongoing or increased aggressive rhetoric between the US and China. The kind of, uh, the ongoing threats, some more real than others in terms of a Senate ruling, which we'll look at in a moment, some more a war of words at this point, but certainly does warrant watching very closely as we go into the rest of this week, both today and tomorrow. So equity index futures off to a slightly negative footing. The DAX is down about 100. I did see an interesting tweet this morning that the, the entire DAX, every single company combined, so BASF, Siemens, all the German automotive makers, the top 30 companies in Germany have a market cap of that smaller by $100 billion of Amazon, which is just quite phenomenal when you actually take a step back and think about it. But hence is the new reality of 2020. Uh, but yeah, index futures slightly negative, uh, the NASDAQ and S&P off a touch. T-notes then up testing at around the R1 this morning, up 3 ticks. Uh, gold is lower though, uh, despite some of that um, general news flow. And quite a few people yesterday were looking technically at $1,750, trying to close the day above that mark. And we eventually— we didn't. And people looking at that as significant, being a multi-year, kind of going back to 2012, as a key level really that we need to get above in order to see the next push up towards more that $1,800 level. So a bit of fatigue setting in and around that price point. We've just kind of drifted lower since. So gold, a little bit of an anomaly in that sense, comparative to the slightly negative news flow and risk-off sentiment. So then about $13. But oil continues to pick up pace. You can see technically this bottom chart here in the futures. We've broken above multiple tests that we had late yesterday. It held during the best part of the Asia-Pacific session. But when those early birds in Europe came in, we just busted through it. And we've seen quite a breakout of price movement. Of a decent 50 cents to just find some resistance at the R1 for any of that— those kind of more short-focused traders just looking to exit on that nice profitable trade. Um, comes after the data yesterday from the DOE, of course, kind of supplemented the, the APIs we had the previous day, which was indicative of a little bit of easing in the constraints that caused that negative pricing back, what, a couple of weeks ago now. And that would be the recalibration, if you like, of supply and demand dynamics to a slight degree. It's just helping keep oil prices bid for the time being. But let's just dive into the headlines and have a look at some of these topics in a bit more detail. So President Trump escalating the rhetoric against China, suggesting the country's leader now Xi Jinping is behind a disinformation and propaganda attack on the United States and Europe. This was one of the tweets that you probably saw yesterday. So Trump tweeting, some wacko in China just released a statement blaming everybody other than China for the virus which has now killed hundreds of thousands of people. Please explain to this dope that this was incompetence of China, nothing else, that did this mass worldwide killing. And then the response to this— so this is the, again, the 21st century diplomacy is how it works— is that Hu Xijin, who's the editor-in-chief of the Global Times, which is very well known in the market, that basically is the Western— we're using the Western format of social media to counteract Trump's accusations that this is basically the government's response in an unofficial way. And they said, "We've never heard of such a wacko in China making this statement, so I have reason to doubt that this dope is actually a fictional one based on someone in your team because there are too many liars," so on and so forth. So quite incredible, the, the, the choice of language here and the the platform of which this, this is happening. But, you know, this is it, and this definitely does warrant watching really, really closely because it's, it's definitely going to intensify because Republicans really are trying to make every effort to paint China as the villain here, and they need to because this is a politically important year for Donald Trump. And he absolutely knows that the economic situation in America is absolutely dire at the moment. Let me just quickly jump over to this. This is, this is the level of initial unemployment claims total over 2 months. As you can see, more than 36 million US workers have lost their jobs in the last 2 months, and the likelihood is there's going to be more to come. And so Trump needs to get busy, and he needs to be blaming China in order to try and offset then the responsibility at his door. So that leaves a big kind of tail risk for markets where, you know, everyone's been so kind of virus-focused. But generally speaking, although obviously we monitor with the absolute most vigilance, things relatively stable as they look to do this gradual loosening of the lockdown measures. But it's kind of just being almost replaced here by a trade war coming back to the forefront. So yeah, any misjudgment of this would be of grave consequence to the market. But you know, I just want to remind you, we have been here many times before, and even if the market did respond in a negative way, we know what happens next, right? Trump comes out, the administration sounds much more kind of conciliatory tone that helps markets restore calm. They then talk about a beautiful letter being exchanged between the two leaders, and then we rally again. So if you think about it, even if this rhetoric does ramp up, how negative do you have to be? Well, knowing that the cycle just is somewhat self-fulfilling, and however bad it gets, it just gets replaced by a better situation. I guess one thing though is, is real tangible changes to their relationship. This certainly is. So there's kind of two things here. One is the Senate last night, they overwhelmingly approved legislation that would lead to Chinese companies, and these are big companies, companies like Alibaba, uh, Baidu being barred from listing on US stock exchanges and would require companies to certify that they are not under the control of foreign government. You know, so when it comes to looking at the books of a lot of these Chinese companies, it's pretty much impossible because all the auditing and everything is done in mainland China. And so the US looking to use that as reasoning then to block these, these big Chinese companies, which obviously have global ambitions, from listing on US exchanges. So that, and also the slight step up in Trump, has always been very careful to really criticize the Chinese government, but never really Xi Jinping directly. However, even that in itself has changed slightly. So yeah, blaming Xi and also taking these more kind of direct forms, which do have real implications, like this Senate bill, like with targeting Huawei or Chinese technology firms, these are things that could actually create a more long-lasting, more negative move. The trade war of words, I'm not so sure really, to be honest. So yeah, that's what's going on there. The other thing, while we're on the subject of China, is that there is some important information coming out overnight which we should be aware of by the time we come in tomorrow, and that's Chinese top leaders are looking to unveil on Friday how much they're planning to spend on stimulus, basically to support the, the post-virus economy. They're gonna— they do this every year. They basically unveil their kind of blueprint on targeting of where they want the economy to be by the end of the year, and that generally gives you then an idea of to what level and depth of stimulus that they're looking to implement in order to hit those targets. The centerpiece of this event is what's called the Work Report. It's delivered by the Premier Li Ka-shing, which typically contains the economic growth and spending targets as well as goals on things like jobs and inflation. So if you think about it, the summary of economic projections at the Fed issue every kind of— well, not quite on a calendar, but a quarterly basis, 4 times a year. When they outline their projections for these key economic indicators. Pretty similar type of thing in China. Most important number to watch though, it is slightly different than the Western format. There's an overemphasis on the GDP number. They target a certain specific level, and this level has been decreasing over time. There's been a little bit of mixed opinion among analysts about what exactly is going to happen overnight, whether they'll target a specific number whether they won't mention a number at all, whether they'll put a number— I saw the Global Times was reporting in China overnight that they're looking at 6% maybe as a target over a 3-year period. So looking to just draw it out given this kind of more whatever shape you want to call it, a Nike swoosh, a W, but at some point we're at the bottom of that downturn and we're going to be recovering. So better to look at it over a longer period. So There's a few different things there, but again, what will be the most telling is some of the language. They generally use a kind of phrase of prudent, flexible, and appropriate stance of monetary policy. That meaning then that they've got kind of options to respond and adapt and come out with new tools to stimulate the economy. But the main thing people are looking at are any shifts explicitly on the wording on monetary stimulus. And also that, that GDP target. So yeah, a couple things to be aware of. So if you were trading things like the Aussie currency, often acts as a bit of a proxy in overnight sessions, it's worth bearing in mind you need to be on the lookout for this type of information. On central banks, we did have the Fed minutes last night, and as you can see on your charts, no interest in this at all. And as we were suggesting during the briefing yesterday, given the nature of it being fairly dated and a lot of the discussion has moved on considerably since that point in time, which has basically rendered these minutes not really relevant for the current context. They did note the rapid spread of the coronavirus basically is, you know, posing a severe threat to the, to the economy. A couple of interesting points that I did see were there was a debate about clarifying Fed monetary policy intentions at upcoming meetings. So this is that idea about the discussion that the, these officials have about what and time and what type of forward guidance do we want to provide the markets in these extreme periods of uncertainty. And that's a difficult thing because obviously something like a pandemic, which is creating, is at the, the kind of epicenter of this economic downturn, it's a very hard thing to kind of accurately try to forecast. And so therefore officials need to discuss a variety of different tools. We've heard this from the likes of the Fed or the Bank of England, but difficult to be really explicit with that guidance. So a couple of things that they were talking about were a fairly limited, apparently, discussion about yield curve control policy, something that's been adopted by some other countries like Japan, for example. This would be targeting yields for some Treasury maturities. Some officials talked about making the Fed a little bit more clear about its forward guidance by spelling out certain economic outcomes, such as a certain level of unemployment rate or inflation rate. That was something which was adopted by Mark Carney when he first came on board at the Bank of England many years ago. Um, one final point though was that the minutes provided no mention of policy members discussing negative rates. So again, this is why these minutes are fairly uninteresting, because that is the hot topic, but that's a hot topic that's only come in after this actual meeting took place. So we'll move on. Bank of England, this is quite interesting. We obviously have had— you had the governor Andrew Bailey speak last week, and he made a kind of good phrase where he said, look, no tools are off the table, but at this point we're continuing to kind of monitor we will use whatever approach is appropriate at that time. So he was a little bit kind of not discounting the idea of negative rates, but neither was he saying that it's really under debate at this point to any strong degree. However, since then we had Andrew Haldane at the weekend, the FT. You've had Tenreyro from the MPC speak as well just a few days ago, and you had Bailey and some of his senior colleagues of the MPC, speaking to the Treasury Select Committee yesterday, and he's made a bit of a U-turn. He actually said— the actual words he used were negative rates are under active review. And again, when you, when you're used to central bank language, it's these nuances that can be very telling in terms of where, at what point of a discussion are they with a certain tool. You know, those who did trade back in the kind of Trichet era, so pre-Draghi, looking at the kind of 2000, mid-2000 to '05, '06, '07, this type of era. That was when we had these ECB code words and Trichet would say phrases like vigilance or strong vigilance. And for the market, this was just a textbook signal of they're going to take a rate hike in 1 month or 2 months. Depending on what was the structure of the words that he used. And with the Bank of England, it doesn't sound like a lot, but it definitely is like a step up in the way toward negative interest rates becoming much more in focus. And I did that poll, you'll remember, a few, a few days ago, and I was asking the question, will the Fed go negative? And, you know, if the Fed do go negative, I think that would be symbolic for these other central banks. And we know the ECB is already— their deposit rate is negative. But I think the Bank of England, obviously having never gone in that territory— the Fed do tend to be the leader of these things, first aggressively, uh, intermeeting cut rates, whether the global financial crisis or the pandemic. They're the first to deploy QE. But if you go back to the financial crisis, the Bank of England right on their coattails, one of the first after the Fed to adopt quantitative easing, which was at the time quite a questionable, unconventional policy that was deployed. So here, if the Fed do go, I think that does open up the distinct possibility then that the Bank of England would follow. You know, that's kind of that, you know, the Fed sneezes, the rest of the world catches a cold kind of idea that they lead that way. So, um, we shall see. But yeah, I thought I'd point that out. Cable actually is a little bit underperforming, but bear in mind it's in the context of a decent dollar move that's been seen, um, over the course of the last couple of hours. And the Dixie's up about 3/10, so the euro is also a bit weaker this morning. Um, on the, on the, the subject of the virus, US Health Agency Director warns of a virus flare-up this year. This came from basically the head of the CDC uh, the nation's public health body, told the Financial Times an exclusive interview that the rapid spread of the coronavirus in the southern hemisphere suggests it is likely to flare up again in the US this autumn and winter, raising the possibility of a second round of lockdowns this year. So I mean, that would be, you know, think about it from a Trump political point of view. If we were to go into a, a second round of fairly stringent lockdown in America during the autumn and winter, and you've got an election to handle in November, that would be really problematic for him because that's going to have obviously direct economic implications. We might see a slight mild recovery, only then to come back down again at the worst possible timing. So that, for me, if that did materialize, not only is it then, well, how bad is this second phase if it does flare up again from the virus side, but also What does Trump do in response? Because, you know, we're already seeing it at the moment, the way he's, he's kind of framing China in the way that he is. If that was to happen, you know, the gloves are off then. Uh, he'll be really reaching, I think, and that could again create quite a lot of, uh, significant risk for the markets in that sense. So yeah, I thought I'd point that out and just give you an update on that front. Canada-wise, there are actually a number of important things to look out for. So Coming up in about an hour's time, you've got the first of the major manufacturing and service PMI numbers. These are flash readings, so you do need to be mindful of these in European assets. They are readings for the month of May. So if you remember, April was absolutely catastrophic in terms of the size of the collapse, obviously given the, the immediacy of the lockdown. May is going to be pretty dire reading, but most of these figures are going to see a mild rebound from some of the lower levels of which they were at before, you know. So if I take some of the ones like German manufacturing, it's going to probably uptick slightly but still in heavy contraction as far as the PMI is concerned, sub-50 at 39.2. If you're looking at the eurozone as a whole, manufacturing at 38 and services at 25, services certainly the hardest hit. And, you know, a graphic I can quickly show you here is you know, looking at the number of unemployed persons in selected industries. Now this is looking at America, but this is very much a similar theme from across the world. It's obviously leisure and hospitality that's getting hit the most because things like bars, restaurants, clubs and pubs, things like that, are completely shut down. You know, it's not like electronic retail trade or governments working remotely, you know, you just— they just can't operate at all. So these people are obviously getting laid off, and that's the real area of significance when it comes to the employment situation. So keep an eye on those, they're coming out. Eurozone from 8:15, France 8:30, Germany 9 o'clock. Eurozone UK manufacturing service flash PMI is coming out at 9:30, so keep an eye on sterling as well. Then going to the US afternoon, we get the obviously the Thursday weekly jobless update expected at 2.4 million. 2.4 million would continue this still very large numbers of initial jobless claims, but a continuation at least of the extremity of what we saw in the initial lockdown phase that we had. You know, if you think about it then from a business point of view, you know, there was such uncertainty, you know, even for a company like us. There was a real lack of clarity at that point because we are right in the early acceleration phase of the the virus, didn't know how bad it was going to be, you didn't know how the central bank was going to respond, you didn't know how the government was going to deal with this, you didn't know really what the lockdown meant at all. And so a lot of these smaller, medium-sized businesses literally were letting people go in preparation for, you know, just saving as much cost as possible. Now that there's a little bit of visibility returning to some degree, these levels are kind flattening out a little bit and will likely continue to decrease. But that doesn't detract from the point, as I showed you earlier, that the unemployment levels in America— you know, we had that nonfarm payrolls report obviously a few weeks ago, and it came in at -20.5 million. Well, if you look at the cumulative over 2 months, we're almost— well, we're more than 36 million. So the next payroll number won't be as bad, probably, but it's still going to be a big number in terms of the economic reality. How much is that going to move markets? Probably not a great deal. So remember, there is that quite clear disconnect between Main Street and Wall Street at the moment. So yeah, the jobless claims today, on that point, I don't think it's going to be a market mover, to be quite honest. It really has kind of— impact value has diminished over time. As that shock factor has kind of been bedded into market psyche and price now. But again, worth keeping an eye out for. They've got the Philly Fed Business Index coming out as well at the same time. And then going into the afternoon, you get the flash manufacturing service readings coming out for the US and existing home sales as well, which obviously going to show a significant decrease against the prior reading. From a speaker's point of view, there's a few from the ECB. Pernetta speaking from the Fed's point of view. Quite a busy docket. Fed's Williams, a voter, speaking at 3 PM London, so 9, 9 Chicago. Clarida at 6 PM London, midday Chicago. And Powell opening remarks at an event about how COVID-19 is affecting your community. That'd be at 7:30 London time in the evening, so 1:30 Chicago. Um, yeah, and that, that's pretty much it. So there is Ascension Day being observed across some spots in Europe, but as far as I'm aware, Eurex is trading as normal. So if you are trading things like, um, the Bund or the DAX, just normal, but volumes potentially could be a touch on the lighter side. So a public but not a market holiday in that respect. All right guys, that's it. So feel free to leave a comment if you have any questions, and then don't forget to subscribe to the channel. Obviously another update to come tomorrow morning, so I'll speak to you then. Thanks very much.