US Ready For Trade Talks with Japan and Europe as Earnings Come Into Focus

Bonjour les amis, and good morning. Tuesday the 16th of April from London, just gone half 7 here in the office. I think we can all start by saying our thoughts are with those in Paris affected by the horrible catastrophe of Notre Dame burning down last night. And Macron has already come out and said they will do what they can, or everything they can, to rebuild that wonderful masterpiece. So thoughts, uh, of course, with that situation there. The pictures last night were, were hard to take, I'm sure, for, for many people. Um, as we look over the markets from yesterday as well, we can just have a quick look here. And just talking to someone here about the, the volatility or the volume in, in euro and pound yesterday, the lowest has been for quite some time. And we were very much stuck within a range, certainly for the euro. If I'll just bring that into the picture here. You can see very small, didn't quite make Friday's high, didn't come down even to the pivot yesterday in, in a range on the futures from, well, 113.81 to the high to the low of 113.58. So very, uh, very small range. Uh, what was the, the high that we had back on Friday morning and Wednesday sort of area as well has acted as a good level of support this morning, come down to S1, and it's now contained within a smaller range. But, uh, yesterday, uh, was a, was a pretty quiet day for the majority of the markets. The pound as well drifting higher, yes, but again, the, the volume, uh, not really offering too much in the way of momentum either direction. Uh, the S&P— we'll come on to stocks as earnings are the main focus now, uh, as well, a bit in a bit more detail. But you can see that 2900 handle just acting superbly. I mean, we went down to 2 ticks above it on the futures. I remember talking about at the time, it'd be really interesting to see what happens and how we close on that level. Uh, it was obviously there 6 times tested before that on the previous days, and since then it's, it's pushed on and we're now 15 points above. So really key level on that first retest of the 2900. More earnings out today, uh, as well to, to keep an eye on, but decent reaction there in, uh, in the S&P. Also yesterday, the, the main— one of the main moves, or if not the main move, came for the CAD. Here you've got the Canadian dollar against the US dollar. So Canadian dollar weakness here is the, the Business Outlook Survey came in a lot worse than expected. We can see here the reaction has pushed us down to lows that we had from last week, and really actually quite a key level to, to keep an eye on. We had really good support here back on the 5th, and then last on the 11th, whatever day that would be, Wednesday. And the test there this morning, uh, just holding up so far. Uh, having a quick look at, uh, the, the headline— well, we actually have a quick look at oil as that did just throughout the, the morning and then into the sort of the post-open did drift lower as well. And, and this was one of the main movers yesterday for oil, the range trade from that high at $63.74 was good, but even then, not the, not the biggest range for, for oil, uh, to be honest, uh, at all. We'll have a quick look over some of the headlines from, from overnight, and, and to be honest, it's likely going to be a relatively short briefing. There's not too much in the way of new developments or new headlines that are coming out. The calendar, however, is, is pretty good today, a lot better than yesterday. It's going to be a lot better than Friday, and we are now getting into the main part of the week. You know, the earnings coming out. Wednesday is a good day from a data point, as is Thursday. So if, uh, if you held back yesterday and didn't get too involved trading, it's not, uh, not the, not the worst thing at all, uh, in the world. Overnight Asian stocks, they were, were stalling. We just saw the S&P, uh, how it did drift lower for the main part of the day, and we did finally have another down day. Uh, but yes, Asian stocks still stalled near their 6-month highs, and investors very much now focusing on, uh, US stocks and, and how they perform, uh, with, with the earnings. If we go back to last Friday, JP Morgan did beat expectations, and, um, the, the Dow Jones, albeit a bit delayed, did push higher into, into the close on, on Friday. Um, you can see if I just bring the, the Dow here So it had been pushing higher into that morning. We had the earnings that came out, we did then push on, uh, to into Friday evening. If I just circle or square the rest of that, that session on Friday. So JPMorgan did come in better. However, the earnings yesterday that we saw from, from Goldman Sachs were slightly worse than expected, and Citi wasn't much better. So stocks did come under a touch of pressure, but once you got down to that technical 2,900 level. We have since then pushed on, and Asian stocks have done so as well. So yeah, it's like I said yesterday, and even in the strategy report, I think even if the earnings aren't great, we're gonna keep going high. We're gonna get that all-time high as sentiment still is very much with the buyer, and with 2017 type trade where you're grinding higher, and any dip like down to 2,900 in the S&P is, is a place where you can buy to continue a market that's just going higher. So any dips at the moment, albeit controlled, are, are areas I would still be looking to, to get into, to get long for US equities. Uh, the, the Dow Jones yesterday obviously underperformed or didn't perform as well as, as the others, although you can see from a technical point of view the, the NASDAQ did have a really decent push lower on the sort of the lower volume of trade, but also as it broke out a bit of a range in the market of that trend line and snapped back down. But where do we fall down to? Really good area of support, low of the 11th, just like how the S&P found support. We did push higher, so those dips very much still a case of being bought. So sentiment, where is it going to come from if it's going to change at all? Of course, the, the Chinese trade talks have sort of been put on the back bench for the moment. We saw positive data out of China on Friday which signaled that the, the lending, uh, was improving. And of course, these are the two biggest economies in the world, so if they're lending more for, you know, China and US is also doing well, stocks are going to love it, uh, and keep pushing higher. Uh, investors looking now to the US earnings. So we do have Netflix, uh, out today, which will be one to, to keep an eye on. We also had some, some dovish comments as well yesterday, not that that's going to be any surprise at all, which is going to help the, the, the cause for the— if you are a bull in this market. From, uh, from Fed's, uh, Charles Evans, Chicago Fed President, who currently sees rates on hold until the fall of 2020, saying that the Federal Reserve may need to cut rates if inflation falls. So again dovish comment support in this market. But that's very much been the case since early January, uh, here as well. However, there is possibly a touch negative sentiment about these earnings. We talked yesterday, uh, about the recession fear of, of the courts or the second quarter earnings and how they're going to be, you know, two negative quarters in a row and the recession fears are going to start climbing again. But again, it's not new news, that is to be clear. However, a lot of the recession fears were, you know, prominent in the market at the back end of 2018 where the markets were coming down quite strongly. So if we were to see, you know, the hard data coming in as negative, you know, the earnings were negative across the board, then this might start to take place. Of course, Donald Trump would have something to say about that as he uh, would definitely make comments on what the Fed have done and how they've restricted his stock markets, um, from covering another X amount of points to the upside. But there has been some negative, uh, sort of comments here. You've got a strategist from, from BlackRock saying we're going into this earnings season with the most pessimistic expectations in earning revisions ratios since 2016. But stocks are 1% from their all-time highs. So I, I think there's going to be every downtick in equities, every negative cash open, um, every bit of profit taking, there's going to be a couple of reasons that, uh, you know, reports are going to say trade talks, uh, are, you know, are not going well, or, um, you know, global slowdown. Literally been the last sort of 3 weeks any negative tick. But we're in a market that's trending higher. I think something massively would have to change for, for us to start coming down. Um, and, and with the central banks continuing to be dovish, I think it would be, you know, the, the main thing that might have to change is that we see US data get really, really good, that the Fed are in a position where they have to increase rates. And it's not like the data across the globe at the moment is, is that strong. So for me, stock markets go higher for, I don't know, next sort of 3, 4 months at least, grind higher. There will be of course a bit of an interesting battle around that all-time high, uh, in equities. You'd imagine with the, uh, just an area to take profit. We just have a quick look at that chart. You can see the reaction from the, the low up to the high, just how smooth it's been, with only a, you know, a period of sort of 3, 4 days at most where it's just really come down, uh, not far away from that all-time high. Can we get it this week, another 30 points? If— I mean, earnings could, could get us there. I just worry that with effectively only 3 days left of the week with Good Friday, uh, and then, uh, Easter Monday, that volume might not allow it. But it, it seems inevitable. Whether that comes in this week or not, less so. Um, also focus of the market overnight, uh, WTI drifted. We saw it wasn't a big move at all, but after the longest run of weekly gains in 3 years. So along with the S&P, as if oil keeps pushing higher, then, then stocks are also going to love that. Interestingly still, if we, if we go back to the chart and look at that oil um, chart. We, we've talked consistently, and, or constantly, I should probably say, about this area, uh, and 65 to be exact, to that, to a higher point of this resistance zone with the June and August lows from last year. It's just a really good place to take some profit, and I think that's what you're seeing here. From a, a key sentiment point of view, you've got the previous high we talked about yesterday in the morning, in the morning at 6304 was the previous high from the 3rd of April. Also a good price action point going back to November last year. You can see the reaction we had from there was good, worked well yesterday. If we can get below there, then, you know, then you get a further run down to perhaps sort of $62 area. But for now it's holding quite nicely, and from those highs we're currently only $1.70 up. But as an area goes of taking profit, you know, it does look, uh, pretty good. Another move that we saw overnight slash this morning, uh, in the, in the Aussie dollar. If I just bring this into picture here, you can see, uh, it did move lower. Not, not massively, not massively, um, but we are, uh, looking to, to test— or did we get a test? Not quite— of, uh, of the, the morning high that we had on Friday. Dropping it down to a 15-minute, you can see in the early hours we did drift lower This was all saying the, the RBA that were talking about how the next move could well be, um, a rate cut, and especially appropriate if inflation stayed low as it is and unemployment trended up. So an interest rate cut there would obviously see further downside here for the Aussie, one to perhaps keep an eye on throughout the session. Any comments from, from RBA officials on, on on that and source comments as well, as this market has had a nice recovery from those lows going back to March. You can see we have been pushing on, but this, this negative headline overnight from those minutes just weighing a touch on the Aussie. But this isn't the first time they've talked about interest rate cuts. Going back to late January, there, there were talks that the next meeting is going to be a cut. So how much further it can go just off this, I would say, is, is limited. So, you know, maybe if we can get a move down— and I appreciate that's still 30 ticks away— but to the lows that we had back on the 11th and 10th, as a range trade goes, is a pretty good level to get in, I would say, as well. Um, also just having a quick look We saw European negotiations get underway, or they got the green light to go underway, I should say, with the, with the US, with a target of getting something done by September. Also, US and China continue to talk, and the latter is considering a request from the former to shift some tariffs on agricultural goods to other products, just as US soybeans shipments slump. All in all, the 4 biggest economies in the world are now gripped by trade negotiations. And that comment from Bloomberg is, is absolutely true. Yesterday, uh, marked the start of a 2-day, finishing today, talks between the US and Japan. By all that seemed— and we'll have a look at the article in a moment— it did seem positive. You've got the, uh, obviously US and China all mixed in that. Then you've got, uh, the US and the EU getting ready to, to start things on that. You probably saw yesterday or early hours of this morning Donald Trump tweeting about the trade war with China. In typical Trump fashion, we're going to win either way. We're going to win with a trade deal, or we're going to win without. And would you expect any different? I don't think so. So here's that, that comment just again. We're going to win either way. We're going to win by getting a deal, or we'll win we are going to win by not getting a deal. So yeah, it's, I don't know, trade talks have been going on for what, 9 months now? And if you were tired of Brexit, you're tired of trade talks, that they're going well or whatever. It seems like it's perhaps drifting to a conclusion, but also the market's got a bit tired of these headlines and almost just forgets about them, I would say. Uh, Mnuchin said earlier yesterday, uh, that the trade negotiations— negotiators are making a lot of progress. Again, not new. He told Fox that there is more work to do, however, including enforcement. So yeah, limited reaction off that. I think for, for a while that's going to be put, uh, put to the side. I don't think be the focus on these markets is going to be US-China trade related as earnings season just comes into the main, main port here, uh, port of call. So moving on, uh, you also had those talks through from Japan and US. You can see here, whole franking good trade talks, uh, that Japan's economy minister overnight said, uh, you know, how they were good, but stressed that currency rates should be discussed in a different context between finance ministers. Obviously the US want to avoid any more allegations of currency manipulation, I'm sure. They had a good— we had a frank and very good exchange on views on trade issues. They declined to be more specific but would talk more after second day of trade talks today. Now of course you have the, the Golden Week approaching for Japan where a number of trading days will be missed due to the holidays, but also the, the Emperor, uh, succession happening in a day after— 2 days, a day before and day after are holidays now as well. So the volume certainly for the yen is gonna drift lower, but comments at the back end of today's session will be worth keeping an eye out for there as the, the final day of those two-day talks are ending. Also, as we, uh, push into late April now, or, you know, in a bit, in a week or so, you've got Abe is scheduled to meet Trump in the US in late April for talks on North Korea and Japan-US trade. So something to maybe make a note of in the diary as later this month they do meet up and Also over the weekend, didn't really talk about it yesterday, it wasn't too market-moving or of note, but you had, certainly had Trump and Kim Jong-un talk about meeting up again. So I think Trump was saying how much potential they had, which of course is a lot different to what he was saying this time last year and before, where he called him a Rocketman and such. But that will be again something to maybe look at in the future, how that develops, uh, as well. Just, uh, at the corner of my eye, I've just noticed the, the DAX just coming under a bit of pressure here, coming into 8 o'clock. So it will start to pick up. You do have a gap from overnight which hasn't been filled yet on an electronic trade. So while it's a small one, just keeping an eye on that. You can see over the last sort of hour or so, we have been drifting lower in European equities. The Euro Stoxx is lagging a touch behind. The follow-through to US limited at the moment. However, we have just found a bit of resistance again, probably profit-taking on near yesterday's high in that R1. But one to keep an eye on there for, for the DAX, uh, and potential for that, uh, gap fill, uh, as well. So I mentioned the EU, uh, got the green light for talks to, to crack on with the US and they're ready to start on a trade agreement with the States and conclude— could conclude a deal before the end of the year. So they're expecting this to, to move quickly, but as we know, the likelihood of that actually happening, as said, is, is not all too likely. But that's looking to start soon. So, uh, just on the horizon of potential areas that, uh, could, could see well, equities in general, but sentiment change either positively or negatively is going to be based on, of course, uh, you know, these trade talks with the— with Europe and US, but also Japan, and how it concludes with China, uh, as well as earnings, uh, to come, uh, as well. And also, of course, what the central banks do with— not long now, I think, what's that, on the 1st of May, you have the the Federal Reserve. So that'll be an interesting meeting to keep an eye on as well. A Commission survey estimated an agreement on industrial tariffs would increase EU exports to the States by 8% and the US products bound for Europe by 9%. Malmström, the, the Commissioner, European Trade Commissioner, approved two negotiation mandates proposed by the European Commission. Of the 28 European countries— EU countries, I should say— only France voted against. Um, not too surprising why. Obviously you've got Germany that are really pushing for, for these talks because of the amount of cars that they send out there, making over half of the, the total EU amount. But you've got France on the other hand who are probably saying no, or I are definitely saying no because of the climate change situation and Trump's withdrawal from the Paris Climate Agreement. So you've got to give it to Macron. He stood firm in the Brexit negotiations last week where he said he didn't want a long extension. You know, he wanted the same as Theresa May, a quick one. You know, he stood up for what France wanted, and he's doing it again here. So fair play, you know, standing strong. But it looks like that will look to, to get, get started shortly. But I push that more down the line of, of importance and potential risks that, that could come from it. On these talks, the Trump administration last week proposed targeting a list of $11 billion worth of EU products for tariffs ranging from large from aircraft to dairy products and wine. And then Brussels, on the flip side, drew up a 13-page list of some 20 billion of the US products, including fish, tobacco, suitcases, planes, video games as well. So the, the public— the, the Commission will publish its list on Wednesday, so today, uh, tomorrow, as part of the public consultation. So it seems like the end of today you have— you'll know a bit more about the, the EU the US and Japan trade talks. Wednesday, a bit more about the EU and US. The China, if it's going bad for stock markets, well, the trade talks will be going all well. You'll hear comments like that coming out, I'm sure. But that seems to be drifted, uh, later on. Also, I mean, it's an absolute pleasure to not have to talk about Brexit for the last couple of days with the, the break until the 23rd of April. So this time next week The headlines are limited, absolutely limited. The— you can always tell, uh, with, with a Brexit day if it's going to be of significance if Laura Koonsberg is tweeting. And the fact that I'm looking at her, her Twitter right now and the last tweet she sent was 3 days ago, so tells you everything you need to know. The volume in pound is going to be limited, so if you like a range trade and you don't want to worry about a source coming, coming out for the pound, I'm tempted to say this is the, the time to, to do that, just as the DAX fills that gap. But the only real headline overnight of any significance, if you can call it that, because the comments are dubious as we'll, we'll go through— Germany warns Britain it cannot have further Brexit extension. I'm sure they would have said this before. We can't go— they will have to decide what they want by October. You cannot drag Brexit out for a decade. This, you know, I'm really clutching at straws for a Brexit headline to talk about here. We all, we do know, of course, that the deadlines that have been put in place before have been extended anyway. Europe, who said they weren't ever going to extend, have done it twice. Theresa May, who said they're going to leave with a deal or not on the 29th of of, of, uh, of March. And we saw what happened there. Having a quick look over at the calendar as it does get a lot more exciting, uh, today than yesterday. Coming into 8— well, it's just gone 8 o'clock now, so obviously focus on the European, uh, Open, uh, or the London Open here. But at 9 o'clock— 9:30, I should say, sorry— you've got the numbers out of the UK. So the average weekly earning— average week earnings will be One to keep an eye on there for ex bonus as well. 3.4 ex bonus, 3.5% for the other expected for that year-on-year figure. So a slight increase expected. Going into 10 o'clock, you've got the ZEW survey from Germany and Europe. One to focus on there as we, we have expected— well, we are expecting to see a bit of an increase from a negative reading last, last time out, but the range high to low is quite big, so you'd probably want to see quite a significant move for anything from that. Then it goes a bit quiet over the sort of the lunchtime break between 11 and 1. I wouldn't expect too much in the way of movement. Industrial production out of the US at 2:15, along with manufacturing output as well. So 2:15, a couple of numbers to be aware of just before the cash open. as well. Then you've got the API minutes, API weekly inventories. Last week we saw a tricky reaction where gasoline was a big draw, biggest since September, but we also had a pretty, well, a half-decent build. But that was confirmed as a bigger build for the DOE, uh, on Wednesday for crude as that came in at, uh, 7 million barrels. Also got some, some Kiwi CPI data to come overnight, uh, before tomorrow morning. I've got a couple of speakers as well to, to be aware of, but some, some decent earnings out today. Netflix, Bank of America would be the ones that I'll be keeping the closest eye on. Any questions, as usual, please do let me know. We'll have a quick look over the charts throughout as well. Just seeing here that that DAX has filled the gap there, really good level, and just people taking profit off of that. You'll all be pleased to know that Anthony is returning tomorrow. He may even be watching the briefing now, as I know he did arrive, um, I think yesterday. So he'll be back in the office tomorrow, uh, and, uh, he'll, uh, he'll, he'll be pleased to get back on the horse, I'm sure. But I hope you'll have a great trading day. And good luck with the session ahead.