Trump postpones tariff hike. China stocks rally 5%

Okay, good morning guys, hope everyone's well, hope you all had good weekends. Beautiful sunshine, uh, in London, quite extraordinary conditions for a February. And let's link into my first topic of discussion for today because quite extraordinary moves seen out over in Asia. I'm going to just transition my chart to actually show you the most important one of all, which I don't have on my CQG platform. This is the Shanghai Composite, which has managed to deliver a more than 5% rally in today's session. And as you can see here, technically, this is looking back on a daily chart, technically, you know, quite significantly smashing up through the September 2018 highs, indeed smashing up through the July 2018 highs. And this is the highest levels we've seen on the Shanghai Composite. Since June. Take a, take a look on a longer time period weekly, puts it a bit more into perspective. It is the case that China, their stock market was absolutely the bottom of the pile, the worst stock market in the world in 2018. That is statistically a fact. However, they're the, the top and the best performing stock market in the world in 2019. So Obviously the trade war risks, which have been incredibly well documented here from the desk, are all driving this. Obviously on the downside last year, now on the upside. So massive movement. So what's going on here? Well, of course, this is what's going on. These are your headlines as you wake up. Trump raises China trade hopes with tariff delay. Let's check out his tweets. Uh, let me make this a touch bigger. There were kind of two last night that were the kind of critical ones. He was quite prolific yesterday on Twitter as normal. But look, check the first— check this one first. So, um, I'm pleased to report that the US has made substantial progress in our trade talks with China on important structural issues including intellectual property protection, technology transfer, agricultural services, currency, and all the others. As a result of these very productive talks, I'll be delaying the US increase in tariffs now scheduled for March 1st. So assuming both sides make additional progress, we'll be planning a summit with Xi Jinping in Florida to conclude an agreement. Okay, so a very good weekend for, for the US and China. So this is the, this is the big news, of course. So The US and China trade delegations had their third round of negotiations on Thursday and Friday last week. Third round of negotiations in three weeks. And this is the conclusion. And the Chinese vice premier met with Trump in the White House, kind of to conclude and finish off his visit to the US. And this is the resulting communication following that meeting. There was one little thing that you need to be slightly cautious on here because, well, I guess there's two things. Firstly, Trump has not re— he's not set a new deadline. So it was the 1st of March, and all he's done here is now postponed that date, but he hasn't said— he hasn't set a new line in the sand. Okay, so I guess this gives now Trump flexibility in the coming weeks, as he says in his tweets here, assuming there is more progress, but Of course, if there isn't, I guess Trump now has two ace cards to play. Number one, he can now set a new deadline, which can then put pressure on China. And then of course, obviously, he can go ahead and increase the tariffs, which he's been threatening to do. Remember, the threat here is based on tariffs on $200 billion worth of goods. So in September, as most of you will know, in September of last year, Trump added a 10% tariff to $200 billion worth of goods. It's about 40% of imports coming into the US from China. So a 10% tariff, and he threatened to increase that 10% up to 25% if a deal was not done. Okay, so firstly, the deadline was 1st of January. He then postponed that to the 1st of March, and here we are just a few days away from that, and he's postponed it again, okay, based on positive progress. So one thing, he hasn't set a new deadline, so that's something to kind of be aware of and monitor. The other thing he said in the meeting in the White House with the Vice Premier, he said that he wanted a legal contract. So when they have this summit, if they have this summit in Florida with Xi Jinping to wrap it all up, he wants to sign a contract not an MOU. Normally a lot of these kind of trade negotiations result in an MOU, that's a memorandum of understanding, which is a lot weaker from a kind of legal perspective. And Lighthizer, his trade negotiator, has been saying, yeah, we're close to an MOU with China. But Trump in this meeting, it's almost like— and this was live on TV— it was almost like he surprised Lighthizer by saying, actually, I want a legally binding contract. After Lighthizer had said that we're gonna— we're close to an MOU, Trump said, I want a legally binding contract. And the vice premier of China, his response, he just laughed. So whether or not Trump gets his contract, I guess what I'm saying is, yes, 5% upside for Chinese stocks today. Yes, positive sentiment. Not— I'll talk about the other markets in a second because the feed-through is not that massive. But do bear in mind that China are coming off a massive depressed low in terms of their stocks. And yes, this is positive progress for sure, but, um, don't necessarily start pricing in a 100% chance of this, um, this, this problem being solved, um, in the near term. So it's— we're progressed but, but not, not fully done. Now let's have a look at the feed-through in, in Well, let's look at Europe first. I mean, certainly European markets have been underperforming. Now let's check the DAX here. Oops, sorry. Let me get this chart into screenshot as I want it. This is looking at the shorter term. I want to just start on the daily chart actually, because looking at the DAX and let's just get rid of some of these pivot levels here. So the DAX last week had a good week. I mean, remarkably, given the economic data that we were getting from Germany. Which has continued to show a weakening in momentum. Of course, Germany just about missing out on a sort of technical recession, but certainly numbers have continued to stay weak. But the DAX was quite positive and actually broke up through the February high— or sorry, the 5th of February high. Obviously we're still in February, so new highs for February, testing 11,500 this morning. Just add another line here. So the 3rd of Dec high is the next kind of target for technical point of view on the upside. So it's quite a good example here. I mean, if we take this out a little bit further, you know, you got to— well, actually, let me bring in the S&P chart. Let me get there. I want to compare European stocks and US stocks, and I want, I want you to see the kind of slight underperformance that we're seeing in Europe. Let me set this up. Weekly charts for both. So you've got the S&P on the right and you've got the DAX on the left here. And you can see that there's a huge underperformance in 2019. Let's put a couple of fib series on here so we can properly show you what I mean. The retracement level that we've seen in the S&P now, and we've hit 2,800, I should add, before I go any further. Today's high is at 2,803. So I don't know if you can see Sam North in the corner of my screenshot. I'm not sure you can, but can we all give some serious props to Sam North on the desk here who called 2800 as a target. When did you call that? 3 weeks ago? 4 weeks ago? 5 weeks ago. Sam said 2800, and the response in the office to his prediction was hysterical laughter. What the hell are you talking about? Kind of comment. And but here we are, 2,800 delivered. It's like Ian Poulter, the postman. Now, December's top, though, is key. So the high in December of 2018 is 2,814, confusingly. The December 2018 high is 2814. Okay. And that's a key top should this 28 handle get properly taken out here. I mean, we'll look nearer term in a second. I just want to continue with my point. Europe versus the US. There's, there's, there's absolutely only one winner here because the DAX this morning's hit the 38.2 fib retracement. So this is going back to the whole of 2018. Now, I'm not going off just the October levels like I am for the S&P. For Europe, the October highs were, well, were a hell of a lot lower. So I'm— for the DAX, I'm going off the whole of 2018 here in terms of the sell-off. And we're only 38.2% retraced back to the all-time highs. So you can see a massive, massive underperformance in Europe. And that's just indicative of the fact that Europe That's where the weakness is from an economic point of view. I'm just going to go shorter term though, because, well, how— if it's so weak, why is— why does the DAX have such a good session, a good week last week? You know, further bad news from Germany on the data front, and yet the DAX finished up, I think it was 1.5% or so. And this is because Germany is pretty dependent on China. You know, good news on China is good news for Germany. Germany is a very unusual developed market in in so much as it's, it's very reliant on manufacturing and exporting. About 50% of its GDP is, is that kind of what's normally a traditionally a sort of emerging market model of manufacturing and exporting. So good news about China is definitely good news for the DAX. And so, you know, one of the reasons why German— the German economy is weak, one of the reasons is because of this global risk and the China risk. And so Um, if that negotiation continues to go well between the US and China, it is good news, particularly for Germany, but obviously it's first and foremost good news for China. But, you know, 5.8% up in China this morning, and the S&P 500, if you look at my right-hand chart now, yes, it's gone higher, and yes, we're above the highs we posted last week, kind of nice double top, but we haven't gone very far. So 2798 was last week's high on the 21st of Feb, and we've kind of a bit of a messy— we've got two levels really because Friday's high was at 2795, and so slightly tricky here, but it's the 2795 level that's kind of been support overnight, and we're just now sat on top of 2798. The top side so far is 28 0.0350 with 0.2814, that kind of top from back in December. So they're your kind of technicals here, but not a massive follow-through here in global markets after China rallied very strongly. But still, I mean, markets are up, markets are higher. One of the key things for China, um, let me go back to my other screenshot here and I want to show you Um, what we have seen is the Chinese currency appreciate. As you've seen, Chinese stocks rebounding. Um, here's the Chinese yuan currency pair, and as this moves lower, that's the dollar weakening, it's the yuan strengthening. And you can see that, um, what happened here overnight was the stock market is booming higher, well then the yuan is strengthening. If we take this to a daily timeframe as well, then you can see— well, actually, we need to go weekly here because this is the strongest the Chinese currency has been for quite some time. You got to go back to, again, the summer of last year. So it's all very correlated here. Of course, the Chinese stock market is very correlated positively to the Chinese currency. Both are strengthening quite dramatically here. And actually, this is positive, I guess, generally for the emerging market space. Um, well, now that I'm about to transition into another topic, before I do, let's have a look at the week ahead. Um, because I wanted to talk about the US currency. And one thing, here's the— let me get— so I get this into screenshot properly. This is the week ahead, um, where we've got quite a, you know, a decent amount of action happening and I guess the highlights have been underlined here, although one of them now is not happening. We'll get on to Brexit shortly, but probably the big moment of the week from a global point of view is probably Chair Powell's semiannual testimony. This is in front of the Senate Banking Committee. So every 6 months Powell has to step into the Senate. He'll be doing it the day after as well in front of the House Committee. So it's the Senate on Tuesday, it's the House of Representatives on Wednesday. Tuesday is the big event. That's the first one. And obviously he's going to say pretty much the same thing in both. This is where the chair of the Fed by law has to deliver an update to Congress every 6 months. And so this is happening on Tuesday. It's a pretty protracted affair. It's a bit painful. But this is where Powell kind of sits in the Senate and then one by one gets asked questions by the senators. Who are, you know, have varying degrees of level of knowledge in terms of economics and monetary policy. A lot of their questioning can be more aligned to more specifics around their own, their own electorate. So it can be a bit of a dull affair. I mean, it lasts, I think it's many hours, like 4 or 5 hours this thing goes on for. But of course, what's important about this is what Powell updates markets on. He'll use this as an opportunity to give us an update as well. And this could be quite key, of course. Obviously, the Fed have turned very dovish, or relatively dovish, in January as they guided us to now a new way of thinking. And that is that they've decided to stop hiking rates for now. But of course, if Trump delivers a deal with China, then obviously this can lead to actually economic momentum in China particularly, but in the US it can lead to economic momentum picking back up, which of course will then naturally see the Fed start to turn more hawkish. So all these levers, everything's all connected. And, you know, the more positive news you get on China and the US trade war, do understand that this then leads to the Fed being more likely to be hawkish So I'm just thinking from an S&P point of view. Let's go back to the chart here. Now Sam's got his 2800 handle. You know, he's reached his century. And is it time to— is it time to declare here? Because what I want to ask you— let me delete a few lines— can the S&P go any higher? Here's a question. Can the S&P return to its all-time high? I mean, like in this run. Let's say in March, it may be in April depending on how long it might take. But can the S&P hit an all-time high in the first half of 2019? And I would say to you, no, is my opinion. And that is because what I've just said. Yes, fine, good news on China, absolutely great. But don't forget, this rally is twofold. It's not only China and the US making progress on trade negotiations, it's also the Fed turning dovish. And I'm afraid you can't have both of those positives forever. So either the US do a deal with China and I'm sorry, but then the Fed's going to have to turn more hawkish again or the negotiation breaks down and fine, the Fed stay dovish. But then of course, you lose your positive on the trade negotiation. Okay, so I'm now of the opinion that now that Sam's right and we're right up this triple top from last year, the October, the November, the December highs, this is a very— and by the way, the lows from back on August, the August low, the October high, the November high, the December high. This is a very key technical area and we're here and I just can't quite see how we're going to break it and sustain that break, move to 2,900. Something's got to give here. One of the two positives is going to have to turn negative, in my opinion. Let's take a look at the rest of the week. It's not just Powell. Let's talk Brexit then. I mean, plenty of data in here before we talk Brexit, because I'll finish on Brexit. You've got some important Chinese data towards the end of the week, which is most likely going to be bad news. Yes, obviously we've had some good news on the negotiations. But of course, whilst we wait for a deal and delaying and postponing this kind of tariff hike deadline does mean that you still get a delay in a, in a deal. And in the meantime, underneath it all, Chinese, the Chinese economy is slowing, or at least growth rates are slowing, of course. So key important updates on Chinese data, manufacturing and non-manufacturing PMIs on Thursday. And indeed on Friday. So you can take that one off the table. The very bottom of that list there, 90-day US-China trade truce deadline— well, that's gone. And the other thing you could take off the table is UK PM May on Wednesday back to Parliament on amendments. So that's been taken off the table as well. So let's talk Brexit. Here are your headlines this morning. May goes to the wire with a new Brexit deadline of March 12th. Okay, so she was— but the plan was gonna be, after that spectacular failure on the vote of Theresa May's deal first time round in January, biggest parliamentary failure for a UK government. After that, Theresa May then said, right, I'm gonna go back to Brussels and I'm gonna try and get— renegotiate the deal and get some concessions on the Irish backstop. I'm then gonna come back to Parliament, and we're going to vote a second time, and that vote is going to be on the 27th of February. So, however, over the weekend that's now changed again. So she said, actually, we're going to push that second vote to March the 12th. Obviously, the Brexit deadline is March the 29th, and the further she delays and delays and delays and delays will, of course, the more we get to that cliff edge and the less amount of time there is to deal with the consequences should her second vote fail. Obviously, this is her tactic. If we can get as close to the cliff as possible, if we can get members of Parliament and Europe— if they can, if they're close enough, they can see over the edge and see the carnage that would ensue if we dropped off. Then it forces people into doing a deal. This is the classic political stance. I mean, Trump uses it. Obviously Trump's saying, right, I'm gonna hike tariffs unless you do a deal. And then obviously this kind of forces at least some progress. Well, Theresa May is trying to do some, some Donald tactics here. Of course, it's high stakes. Whether it works or not, we shall see. This doesn't mean— well, we do have other action going on in Parliament because you've now got 3 members of the cabinet saying that if a vote for— if Theresa May's second— if Theresa May's second vote fails, then they will be voting against the government and will be pushing for a delay in Article 50. And on that note, this is what Europe have thought, because obviously, are we going to see a delay in Article 50? There's perhaps two ways that might happen. Number one, Theresa May's deal gets, gets voted through, okay, on the 12th of March. But unfortunately, that doesn't leave much time to get all the legislation work done before we leave the EU on the 29th. Although Theresa May did try and allay fears on that over the weekend by suggesting it will only take a few days to get the legislation work done, which is a bit of a contradiction to all the guidance we've had on that up until now, which has been suggesting that the legislation will take weeks, if not more than a month. So I don't know how that suddenly changed, but, but the point is we might get a short-term extension to allow legislative work to be completed following Theresa May's second vote going through. Okay, that's the first one. The second one is, well, what happens if Theresa May— what happens if she fails? If vote 2 fails on now the 12th of March, we've got two paths really. We either crash out with no deal at all, or Parliament take control and take no deal off the table and extend Article 50 beyond just a temporary measure. And what do Europe say about that? Well, another interesting headline over the weekend: EU considers 21-month delay if May can't get Brexit done. Now this is interesting. Two, two things. I mean, my first thought about this is, well, actually, if anything, I would say this makes it more likely Theresa May's deal gets voted through. Because again, these hardline Brexiteers, of course, they're kind of being forced into a corner here. Theresa May, if you think about them only, Theresa May's played this quite well, I think, in that ultimately She's been saying it all along to them, it's her deal or maybe no Brexit. And of course, I think they're being forced into a corner, and you're gonna get the ERG now being forced into voting for her deal. And this kind of headline is only gonna increase the chances of that happening. You could say, on the other hand, if Theresa May's deal, if it gets voted down again on the 12th of March, well then we are looking at potentially a pretty prolonged delay. 21 months. I don't know if you want a general election or if you want a referendum and all that kind of stuff, you're going to need to delay it anyway. But then you've got the real issue of European parliamentary elections, um, in the summer, and that puts a massive spanner in the works. And this idea of a 21-month delay kind of just sets it far enough in the future that it kind of sorts out those niggly confusing issues with the European Parliament elections and so on. But who want— here in the UK, who wants a 21-month delay? I'm not sure. I don't think business does. I mean, we've been living in this limbo world for a while and it's clearly been negative for the UK economy. And I can't really see anybody enjoying the idea of staying in this kind of limbo for 21 further months. I mean, then what happens? Are we still just in the same place as we are today in 21 months' time, whereby we've still got no deal voted through Parliament? I mean, I'm not quite sure whether a delay of this amount of time is gonna do anybody any favors. So anyway, this is your Brexit update. I'm gonna go to the charts now to kind of finish off. Let me get these out of the way. Away. We've looked at stocks, so mild positive open in Europe and in the US, um, rip-roaring session in China. So it's fed through positively, but not that positively. Um, let's check out the commodity space just to— we'll just quickly go around the charts to finish off. Here's gold. So gold's actually flattish on the session. So all that risk-on in China hasn't really fed through to downside in gold, although We are testing the pivot right now and the low of the session, which was set at the get-go overnight, down at $1,329. Okay, so gold, I mean, and let's look on a daily chart. Obviously gold's had a great run of it. I mean, huge moves to the upside in the last few months. And that level I've just drawn, let me draw another one because perhaps more importantly, the January highs at $1,326 So that's definitely an important price point in the medium term. You got a key double bottom in February at this stage. Obviously February not complete yet, but that's bang on the $1,300 handle, which kind of coincides with the early January high. So $1,325, $1,300, these are your kind of medium-term levels. And obviously below that you're looking down at $1,275. So they're the kind of 2019 technicals, if you like, with the high of the year so far being up at $1,344. So gold under a little bit of pressure, slight risk on, but not dramatic, as I said. Let's have a look at oil. I mean, oil's had obviously a good run of it as well, similarly to gold, as we've had this progress in US-China trade wars and, you know, OPEC cut production and all the rest of it. And We had that key move last week for crude breaking through the $55 handle, breaking the early Feb high. We kind of just drifted sideways in the last couple of sessions of last week. I'll zoom in in a minute. But again, you know, you would say on the face of it, good news on China-US trade war is good news for oil from a demand perspective. But obviously a deal hasn't been done. So as I said, we're going to get Chinese data this week, and it's most likely going to be bad news because whilst negotiations carry on, you're not going to get that big a positive feed-through to economic momentum. We want that deal to be signed off, and okay, fine, then that can maybe release things further higher. But still, oil is definitely— well, it's trading up at levels we haven't seen since November, of course. And if I draw a line at the 16th of November high. That's kind of capped the upside. Um, a $58 handle resistance is something to be very mindful of this week, with $55.75, um, on the downside. They're your kind of two key medium-term levels, okay, for crude. Um, and zooming in here at the moment, yeah, we're just kind of mid-range for the session at the moment. Um, let's have a finish off with currencies. Um, let's check out the euro dollar, which has been very flat over the last few days. And I'm going to zoom in here. We've got a— I guess you've got the situation where you've got a dovish Fed and then kind of really weak Europe, therefore dovish, or the ECB turning more dovish. It's almost like you've got two weak currencies here in the short term. I'm going to draw the key line, which of course is that 2018 low, which is down at 1245. Um, but yeah, last week we flirted with that for sure. It was a key moment when we dipped. And, um, the other kind of level is the, the December low, and we dipped to 1270, and we almost got down to that 2018 low. Not quite. Then we had a decent response and a decent rebound, and it kind of settled. Um, so it'll be interesting to see what happens this week. The 140 handle's key. That was last week's high, give or take. So I think we're kind of trapped here at the moment, that the kind of range is 114 on the upside and 112.70 kind of on the downside, with this January low kind of right in the middle of that range. And that was the support, latter, latter half of last week, 113.37. So here are your technicals. But certainly EURUSD has been pretty flat. And I perhaps expect that to continue to be the case until we get into some of this key data, until we get into Powell's testimony, of course, which is going to be hugely important for the dollar's value. Is he going to— he's got a difficult one tomorrow because with the good news on the US-China trade agreement, is he going to try and be subtly less dovish Probably not. I'd say he's going to stick to his guns. The new message, we're done with hiking for now. And until any deal gets signed between Trump and Xi Jinping, until that happens, I think Powell is going to remain on message with the Fed now on cautious wait-and-see mode. Let's look and finish on cable. To finish the briefing. Um, you know, this news flow we've seen, um, obviously big, big moves to the upside latter part of Friday's or mid part of Friday afternoon session. We draw some lines here because the high of the day, nice and neat, key test of the 21st of Feb high just above the 131 handle. If I go back and draw another line because the high from last week just above there at 131.27 is important. And if we look at a daily chart, um, uh, we're, we're kind of— I don't know, we had that sell-off first part of Feb, and now we've kind of rebounded. You know, this idea that, um, you know, the fact Theresa May's delayed her vote to the 20— to the 12th of March, in a weird way, has been positive for sterling. You could say it makes no deal less likely because either Theresa May's deal will get voted through on the 12th of March, or you're gonna see enough momentum in Parliament to then see a response to remove no deal from the table. Perhaps. It's very confusing still, but you know, I'd say we're back to kind of the middle part of that sell-off that we saw for the first half of February. And I don't know, it's difficult to know where we go from here. 131.27. On the upside. So if we break that, then fine, maybe we can launch an attack at 132.50, which was that key top, the high 2019. So far we do have a level around the 132 handle to be mindful of, and that was the high on the 7th of November. So then, a November high last year. Um, but obviously we'll see. We do have some activities in Parliament this week, but it's not the big one anymore. It's not Theresa May's vote number 2. That's been pushed to the 12th of March. But clearly any more political maneuverings in Parliament this week can certainly have an influence. But I would say now really we're kind of trapped around the 130 handle, I would say, until we get towards that 12th of March date. And in the meantime, do we start to see the ERG kind of get behind Theresa May's deal, for example? Can we start properly pricing in Theresa May's deal vote getting voted through. And if so, that will be sterling positive, mildly. I'd say you might get moves up towards the top end of the range that I got on the chart, up above, up to the 133 handle perhaps. Right, I think I'll leave you to it for today. In terms of data out of Europe, it's, it's not great, but this afternoon we've got building permits out of the US, housing starts, house price index. We then have consumer— I'm sorry, I'm reading from Tuesday. Ignore all of that. Today's really light. In fact, Europe and the US. So from a data point of view, today's nothing. So we do have big things happening with Powell's testimony, number one on that list, tomorrow afternoon. So you're likely going to see a bit of a cagey sort of set of price actions as we go through today's session, as people, you know, once now we've kind of seen this China news get priced in, really now for global markets we want to hear about the other big issue, and that's the Fed. And Powell will be talking tomorrow afternoon. All right, that's it from the desk. Enjoy the session. Thanks very much.