Trump Steps Up Criticism of China

Okay, very good morning to everyone. Monday the 4th of May. Hope you had a great weekend. And quick, quick shout out to Jennifer and Tobias in Sweden. Thank you for watching. I got your message over the weekend, and enjoy your breakfast. But, um, quick thing then to, to look at before we begin the overall assessment of the charts and a general look ahead for the week This is the calendar from the macro menu. So again, always a super important process for our traders. And the way definitely that I kind of plan ahead for the week is I put together or construct this calendar. And obviously for anyone who does trade, there's lots of different calendars that you can see, but mainly comprised of just economic data. I think one of the important things that I try to do is aggregate across several different calendars. So not just trying to pick out the kind of main economic data points, but also in terms of any speakers. So for example, on Tuesday you've got Fed's Bostic, Bullard, Evans, George, ECB's Mersch. So trying to look at central banks' media kind of calendars, also put on geopolitical calendars. You've got things like the UK and US trade talks happening on Tuesday, for example, things like that that won't generally appear on your normal standard standard forex calendar. So hopefully that's useful. I'm going to drop a link to the whole report that I write every Sunday called the Macro Menu in the video, so if you need to read that in your own time, please do. But we'll circumvent back around through this session to look at some of the highlights. But first of all, let's just have a look at the charts and what have we got going on today. So a little bit of risk-off tone, seemingly a little bit of a pickup in the political sparring between the US and China that's really dominating the news flow this morning. And I'm going to give, give you an example of what's being said and my thoughts on that. But as I said, a little bit of risk-off, so slight gap down seen here in US futures. So I'm just going to flip this over to the DAX for a second. So the DAX is down about 335 points, but if you're looking at the US indices, particularly the NASDAQ. Already technically you've got that low that we printed on Friday just coming up to a touch on the late Asia-Pacific session, and we're coming back up to that point now. And as Europe come into the market, pretty similar setups though for the other US indices. And of course comes after a down day was seen to kick off the month of May. So obviously a lot of people banding around the statistics about the seasonality of that kind of sell in May go away. A little bit early, I'd say, to, um, to start thinking like that. But certainly to kick off proceedings this week, you can see then that equities lower, gold and T-notes both up $8, 8 ticks respectively, albeit off their highest points. Oil also as well, just breaking that trend line that I was keeping an eye on from last week. Obviously last week was the first week in 4 where we've had a positive move higher, and boy was it a positive move. It was a huge gain in the front month June futures contract, you know, basically doubling in value in that respect. So we've broken that, we've come back down, and technically then we're just trading back around levels which were the low that trendline test, failed break initially before the push-up seen on 30th, and then corresponding with those highs seen on 23rd, 27th. So quite an interesting level here, already holding in the overnight Asia-Pacific session. We're trading just around 30 cents or so above that at the moment, which is broadly the $18 handle. Uh, so worth keeping an eye on that as well. Uh, oversupplied fears coming to the forefront again. There's been the latest Bloomberg survey, uh, which we'll take a look at, but basically looking at the fact that in April a lot of the kind of competing for market share meant that production values were particularly high. So in the currency space then, with the, the kind of moderate risk-off tone, dollar's a little firmer. The Dixie's trading about 1/3 of a percent, so it's pressurizing both major currency pairs, uh, EUR/USD and Cable, both off around circa 45 pips or so at the moment. All right, well, let's get into some of the stories. Before I do, just remember to like and subscribe to the channel, be very much appreciated. Many more updates coming, of course, like this every morning. And I've also got a couple of plans for some other kind of trader interviews and things to come, so don't forget to subscribe to the channel. But looking at the news stories then for this morning, and this is kind of the main headline reading, and don't forget Japan if you are kind of looking at the overnight volumes, Japan is out of the market pretty much for the entirety of the first half of the week. They don't return until Thursday. And China was also out overnight, so things a little thin as well. But this is what we're looking at, and it's kind of continuation on from last week. Trump promises conclusive U.S. report on virus's China origins. Now, a couple different things here. Trump administration, according to Reuters, is basically turbocharging an initiative to remove global industrial supply chains from China as it weighs new tariffs to punish China and Beijing for its handling of the coronavirus outbreak, according to officials familiar with the US planning. Now interestingly, the president— well, two points. One, the president declines to criticize Xi. This has been quite a common thing that we've seen. Trump very willing to criticize China, but he hardly ever, if ever at all, has criticized Xi. And obviously Xi is at the very top of this, this kind of power structure in China. And I think that's quite a telling sign, personally. I actually think that, you know, the Chinese culture criticism gets taken, you know, very seriously. And if it was to the absolute, you know, kind of the top guy in China, I just think that that's just not gonna fly. And that's where actually you get a lot of the real repercussions of how China might react. But as long as Xi is not the target and it's broader China, as strange as that sounds, I think then that this, this fits that narrative that what Trump is doing is purely political at this point. And I think although he's playing a fairly precarious game, which if miscalculated could go very badly, I actually think that That is a telling sign, that the fact that he's kind of exempting Xi from the criticism, even though we know Xi is the leader of that country. So the two you would think would be associated, but you'd very, very rarely hear Trump calling out Xi specifically. The other thing is as well, the administration— so Pompeo obviously just backing up Trump talking about enormous evidence, you know, this was a talking point the end of last week, but there hasn't been really any evidence forthcoming as yet. So for me, why is all this happening? Well, I think a lot of this is happening because of this. From a timing point of view, this is looking at the change in payrolls and the US unemployment rate. And of course, this data is due this Friday. Uh, this Friday we'll get the latest of what will be the first real insight into the tangible impact for the mass layoffs that have been seen in America Due to this capturing then that main point of the lockdown that's been seen nationwide. So the expectation is for the headline change in non-farm payrolls to be -21 million. The range is -28 million to a best-case estimate of -2.5 million. The unemployment rate, as you can see at the bottom, is expected to surge up to 14% is the median estimate, with a range of 5.1 to 21%. So how much is this going to impact markets? I actually think very little because it's been very well telegraphed, it's been talked about a lot. I think a lot of this was the, the cause of that big volatility seen in markets in March. Remember, markets are forward-looking in this respect, so I don't think the data in itself is going to be a massive thing for markets to digest, but I think this underlines why Trump is doing what he's doing. I was talking about this in the Macro Menu. I've been tweeting about this this morning. For me, this is pure tactical, uh, diversion tactics from Trump. He knows that this is going to be absolutely broadcasted around the world in global media as the worst situation since the Great Depression. And that's bad for him in a political year, particularly in the run-up to the election. So what does he do? He tries to use diversion and deflection tactics. It's not my fault, it's the Chinese virus' fault. And therefore you get a lot of finger-pointing in order for him then to come out of it with a narrative in that sense. So what else has he been saying? Well, he's actually come out as well the president, and he has said on Sunday he now believes as many as 100,000 Americans could die in the coronavirus pandemic. Now, this is after he previously said a week ago that his estimate was 60,000 to 70,000. So, you know, huge revision upward as well. And this comes with already his previous target being topped, as the death toll in America now is coming up to 70,000 already. at this point in time. So again, I think for, for Trump, it's about setting the, the scene that you're going to have a shockingly bad economic situation reflected in these numbers, albeit from a market trading perspective it won't be that much, but politically potentially very damaging. And then you overlay that with a much more higher death toll than he had previously said. So cue the anti-China rhetoric in order to try and cause a distraction for the general public. So yeah, all of this at the moment I think is, is the, the political machine on Capitol Hill in full flow. What else is going on? Well, Trump has said that basically they need to pass a further stimulus that must include a payroll tax cut, but the only problem there is obviously That's all well and good for people who are employed, but what about the 21 million people who no longer have a job? They're not going to benefit from a payroll tax cut, and hence the reason why it's been difficult for him to push this one through. But again, this is another thing that I would be expecting to complement the, the anti-China rhetoric would be more pledges of fiscal stimulus from the administration. Again, all of this is to appease and manage the general public sentiment over the handling of this situation. So that's kind of the Trump situation. So obviously that's no fear of kind of returning of a tit-for-tat, yeah, and more tariff— tariffs coming on board in already obviously a challenging economic situation under the pandemic has made people a little bit nervous to get the month underway. But as I said, how much of this is true and how much of it are idle threats? I'd say for me it's more the latter at this point in time, but certainly warrants monitoring the situation very closely. The other thing as well that's kind of reared its head, North Korea has fired shots at South Korean guard posts in the Demilitarized Zone, or the DMZ, the buffer separating the two countries, on the weekend. I don't think that's a, a big deal, but obviously more confrontation on that front, um, is, is just generally not good for sentiment overall. Um, let's have a look at a few other headlines. Oil, as I mentioned, it has gapped down a little bit, and we're down about $1.50 at the moment in price. Oil drops with optimism over demand waning in the face of a huge glut And what they're talking about here is this OPEC production jumped by the most in 30 years last month. Um, so let me just scroll down and here's the Bloomberg graphic. So production soared by the most in 3 decades last month, as you can see here. So really interesting. Yeah. As the world was, um, kind of at the beginning of the year under a bit of pressure with the ongoing trade war, then obviously this, this pandemic started kicking in. Well, we already saw Chinese consumption diminishing through February when they were on lockdown shortly after the Chinese Lunar New Year. Then the pandemic began and then come the global spread of the virus, uh, and that meant that obviously there's been a huge blow to demand. Irrespective of that though, given the adjustments from these oil-producing nations tend to be slightly lagged, then they were pumping, you know, an enormous amount. You've had almost this overnight global collapse in demand, and yet that's why the adjustment and why prices have been so volatile and in a negative way for crude oil prices, because of these fears of this overall glut. Um, so even though there's been a few tentative signs, and that was helping support prices in, in WTI last week, about a bottoming out, um, in regards to, um, the oil consumption situation, This has brought about new concerns and obviously gets overlaid with any increase in US-China tensions, which is going to be another kind of potential situation which could, could weigh on overall economic performance if that was going to unfold in a worst-case scenario way. And that would obviously impede demand again in that respect. Um, so yeah, a couple things to, to watch out for. Um, I think the, the idea or the threat then of, uh, this kind of negative pricing in oil to the degree of which we saw those massive fluctuations just a few weeks ago, I think the probability of that is way lower now. I've discussed this many times before, this kind of spreading of, in particular, the, the United States oil funds exposure across the, the kind of the futures calendar now is going to help offset that. But, but certainly, given the, uh, the size of the rally last week, a little bit of a pullback lower, um, I don't think would be the most surprising thing if that were to be the case. And certainly a little bit of that unfolding, uh, this morning. Um, a quick look elsewhere, uh, just going to have a quick look at the earnings situation. And we are still in the midst of of earnings season. In the US, there are 148 companies reporting, 2 of the Dow 30. One thing I would say is, although there's quite a populated screen here, a table of the most anticipated earnings, if you're a macro trader, well, most of the biggest largest-cap or industry titans, they've already reported. Obviously, last week was particularly key for the technology names— Amazon, Apple, Microsoft, Facebook, and so on. Uh, this week they're much smaller, um, it's kind of more mid-cap names, uh, but certainly quite a few coming out. So from an index moving potential, perhaps going to be superseded by some of these other bigger, broader macro themes on the virus, on the US-China tensions, particularly if Trump does indeed start to ramp things even further, uh, on that rhetoric ahead of the anticipated, um, negative payrolls that we're going to see on Friday. And from a European side of things, um, it is worth noting, if I just quickly scroll down, there are a couple of European large-cap names though to be aware of. I wrote a calendar here on the macro menu. So Tuesday, quite a French focus in the CAC 40. You get Total, BNP Paribas. Wednesday, BMW, the automotive maker, Crédit Agricole, SocGen. Thursday, ArcelorMittal. And Friday, one one of the DAX giants, Siemens, reports as well. So worth just noting that onto your calendars. The other news stories at the weekend that were quite dominant, certainly if you're, if you're based in the UK, was this idea about how is the UK government going to start relaxing? What's the roadmap to the relaxation of the, the lockdown measures that have been in place for the last couple of weeks? Now the reason why this has been quite a dominant news article over the weekend is because on the 7th, so this Thursday, we're going to hear from the UK government about their update to what does the relaxation of these rules look like. And some of the things that we were seeing were staggering of shifts amongst proposed new guidelines, avoiding hot desking, avoiding face-to-face meetings, 2-meter distancing enforced by floor tape, Social distancing, according to the Sunday Times, will mean that it would leave commuter trains with only 15% of their usual capacity until more relaxed rules come into place. So the, the reality kind of coming home here, that is going to be certainly for white-collar workers probably several months before we get anywhere near normal working practices. And I would probably say that's not going to probably happen until the new year at this rate. From a, I mean, that's fine from a political point of view. From a government side of things, well, two sides to look at really. One is the government in the UK has a 5-point plan, so trying to anticipate when, what, and how long these loosening measures start to kick in, I think you could use this as a reference point albeit I would say that the UK government themselves has changed their 5-point plan wording quite a few times over the recent weeks, so it does tend to change, hence the fluidity of the situation. So what the government are saying about the, what's going to happen in 3 weeks' time, I would take with a degree of a pinch of salt because at the end of the day, you know, that we are dealing with a situation where the virus in itself will be volatile in nature. And as such, then we're still learning at this point and therefore subject to probably changing tactic as we go forward in time. But from, from a starting point, I think this is what you've got to look at. Then from a market's perception, uh, because that's what you guys will be more focused on, uh, the main things I'm looking at are really a 3-point plan, which is the shape and severity of a second wave upon reopening. And of course, then I'll be looking at the 5-point plan to determine then about the timing around this point 1. And then point 2, the implementation of large-scale testing to better monitor and control any secondary breakouts. If they can't do testing en masse, then there's no way that they're gonna anytime soon be relaxing in multiple steps in a fast way. And 3, whether governments can continue to support the economy over the long term. If, as is becoming quite apparent now in, in much of the different countries in mainland Europe and in the UK, this is going to be a long drawn-out route back to normal behavior for the public and the way of which people work. And so therefore the economic rebound is going to be gradual, and that means then that governments more than likely will need to continue to offer more support. The question mark have come is, you know, their capacity to do so and their political appetite to continue to offer more assistance as well, given the fact the government's obviously loading up more and more debt. And ultimately, these governments typically in a Western democracy tend to be quite short-term focused because they need maximum payoff for the now. Whether or not they can continue to, to do that We shall see, of course. I mean, in Italy, if you read the press this morning, their Conte is getting quite a lot of backlash about his plans for the relaxing of rules, particularly in regards to small businesses. And again, the summer is approaching, weather and temperatures are going to start to pick up. People are probably going to get, in terms of the public, a higher probability of them flouting the rules. So it's going to be interesting to see how the governments can handle this. Going forward. And obviously this Thursday we can get latest update from the UK. We're also going to get from the UK the Bank of England rate decision that is coming out as well on Thursday. Do be aware they released a press statement last week saying that they're going to release their interest rate decision at 7 AM. Normally it would be at midday. Now the reason why they're doing this, from what I've read at the weekend, is to accommodate the publication of the interim financials to Financial Stability Report. They basically want to release the same thing, or the same two reports at the same time. So you get the rate decision, you get the Financial Stability Report, and you also get the Quarterly Monetary Policy Report, or otherwise known as the inflation report from years gone by. Um, then Andrew Bailey, the now Governor of the Bank of England, he's basically going to brief reporters after the decision, and the contents of those discussions will then be made public 10 AM. So it's a little bit of a different format actually than what you're probably used to. So do be aware of that if you're going to be trading things like the pound. You're going to be seeing that statement come out at 7 and then more comments a bit later on from the governor. Now how much of that, or how much can we expect from the Bank of England? I would say not, not a great deal. I wouldn't expect them to start adjusting their quantitative easing program, for example. I'd be expecting them to do something in a ilk to what we had from the Fed and the ECB, which is kind of talking about the prospects of potentially doing more in the accompanying meetings, i.e., in the summer. At that point, they're going to be armed with a lot more information about how then the economy is responding to the pandemic, given it's going to represent then the biggest economic part of the downturn throughout that month of April. And then how is the unwinding going as we're going forward in time? So I think it's very much a setting the scene meeting for future action if it's deemed necessary situation. And I'm sure that they'll be continuing to do like what Christine Lagarde was asking, which is that governments need to continue to provide as much fiscal support to complement the monetary actions that have been taken already. So that's pretty much it. I mean, the calendar for today, these were all final readings in terms of the PMIs that have been coming out later on this morning. You've then got an update on the, the kind of pandemic purchasing of bonds from the ECB later on this afternoon. Then US factory orders, it's kind of the main data point expected to show again a downward figure in reflection to the fact that this is encapsulating much of the, the month of March in the US. So again, if you go on to either on my Twitter account, I tweet it on a Sunday, or I'll put the, the link into the video. Here's the full macro menu. So I talk about the UK, a bit more detail about some of the things I've just discussed, the Bank of England, talk about payrolls, earnings season, and there's the full calendar for everything you need to be aware of for, for this week. But hopefully that's enough to just get you started, make you aware of the fundamentals for the week. I would say overall, some of the main things that I'm looking at, or the main thing I'm looking at, is how far does Trump push the envelope with this whole China and US situation. I think he is going to push it further, and I think this is all a political attempt to try and, and distract and move away from any accountability being put on his doorstep. So that does provide a bit of a near-term risk for markets, particularly just given, um, what a rise that we had through last month in the equity space does leave equities generally a little bit susceptible to pullbacks like we've been seeing over the last two sessions or so. But having a look here for this morning, just finally on the charts, I'm just keeping an eye. The NASDAQ has broken now above that, uh, technical key point, which was that previous low, uh, and the high of the Asia-Pacific session. So a little bit of a further follow-through, and you can see there the relevance of that level going back as well to the 28th. So a little bit of an extension of those gains. Uh, the S&P just testing that same level, and the Dow just coming up to it at the moment. So all in all, a little bit negative overnight. Perhaps slightly faded back, uh, as Europe have come in. The Trump-China thing needs to be watched. How much of it though, from what I'm saying, is actually a real tangible threat to markets? Perhaps a lesser extent, because I think people see through the veil that it's Trump's political posturing to some degree. All right guys, that's it. I'm going to wish you a good week ahead. Any questions, let me know, and have a good session ahead. Thanks. Thanks.