US set to delay more China tariffs ahead of Trump-Xi Meeting

Okay, very good morning to everyone. It is Wednesday the 26th of June, so I hope everyone is well. I'm going to go through a couple of different things. Obviously I've not been doing the briefing the last 2 days, and so I think I'm going to cover kind of twofold from my part, from a fundamental perspective. One is a bit of a view and what my take is at the moment on the outcome of the upcoming G20 summit, and in particular, the conversations between Trump and Xi. What do I think about that? What do I think about the outcome? What do I think about what the Federal Reserve are doing with some of the commentary we heard from Powell and Bullard from yesterday? And then also, quick recap on Brexit, what exactly is happening at the moment, because Uh, this is kind of the twofold being here. What I can update you on is the current state of play, but ultimately, uh, dividing this into an assessment, an insight of what I think about this, but what more effectively is going to be in the second point, uh, the more focus for, for trading in terms of the session ahead. So it's kind of view and then more of a practical element, and then I'll hand you over to Sam for the rest of the technical analysis. Looking at the charts though, from an overall perspective, things are— I guess don't look too dissimilar from what we had yesterday. Probably the biggest, um, jump on these charts that I'm sharing at the moment is the movement in WTI crude. This came of course last night. We broke what was the, the range of, well, the week, I guess. So managing to, to see a decent lift on the back of what was a sizable drawdown, the biggest since March of 2019, a draw of just over 7.5 million in the API crude oil inventory. So decent move higher in oil overnight. We'll have a look at those numbers in a bit more detail shortly. Otherwise, equities, uh, equity futures, uh, Europe a little bit negative just following the kind of the downward move we saw, uh, yesterday on Wall Street. We kind of held on to that move. Uh, for me, I don't actually think that, um, you know, if I just look at the daily continuation of the the S&P 500. This is kind of encapsulating the last 18 months, and I don't really think that a little bit of a pullback after that retest that we had after that really aggressive run over the last couple of weeks, uh, is, uh, too unexpected, you know, without any kind of thing in the way of fresh catalysts. I don't think there was much need for us to really bump higher, and now the Fed have showed their hand. Now we're kind of waiting for the Trump NG meeting, and then, you know, kind of defining that range, I think, is, is probably appropriate. What we have been doing at the moment, which is kind of these price bands going forward until we get more clarity on those top-level macro kind of events. So equities, yeah, a little bit of a pullback continuing. I'd say as we get down to that lower bound though of that range, potentially you could see even more narrow consolidation the closer we get to the, the significance of that meeting at the end of the week. In the currency markets, a touch of dollar strength. So the major pairs are a little bit lower. Euro-dollar, top left, down about 13. Cable down about 23, around the lower bound of its range from overnight, which is also just below the low print that we had late yesterday evening in the futures market. On the back of this, again, the comments out of the Fed, we'll look at in more detail in a second. but certainly this idea of a 50 basis point rate cut is being almost taken off the table now by the Fed, just looking to tame some of the expectations that were so drastic in the Fed becoming ever more aggressive in this rate cut scenario. That's not to say that they're still not going to cut, that still is the baseline expectation, but just kind of reining it in slightly from the overextension perhaps of how the market interpreted the information we got from the central bank last week. So that's kind of overview. Let's have a look at the headlines and what we have. And first of all, starting off with the Brexit situation, obviously I read the weekend news not only about the personal life of Boris Johnson but about the fact that he had used Steve Bannon, the previous strategist of Donald Trump, highly kind of an interesting character in terms of his views and the use of his skills, and the association with him does raise a few eyebrows. But the comment I thought from yesterday from Boris Johnson was absolute Bannon work if I've ever seen it. And it's this kind of Trumpism, I'd call it, of Johnson using the type of language that's very much been a successful marketing strategy for Donald Trump. In terms of it being quite a powerful message. You know, the other person who adopts this quite naturally and very well from a UK politics perspective is, of course, Nigel Farage. And, you know, it's this use of language that I think is particularly powerful when speaking to the broader national public. And Johnson yesterday said, makes a do-or-die pledge to leave the EU on October 31st. So it's this kind of, um, dramaticizing the, the event, making it feel as though, you know, really capturing this disdain for the government's mishandling of the inability to deliver Brexit and trying to just really fuel that up to the max to get everyone on board. Um, so obviously on the back of this, what's Hunt's strategy? There's no point going against that hard line you might as well adopt the complete opposite. And that's pretty much how that this two-horse race is being defined at the moment, kind of the hard Brexiteer against the more kind of measured hand in, in the form of Jeremy Hunt. So again, lots of different, uh, called hustings or meetings that are happening, so lots of coverage going on. How much is the pound really responding to this? Well, I guess maybe a little bit of further No deal risk does need to be priced in, although that largely has happened given the fact that Johnson is such a clear distance front-runner in this race to become prime minister. The more he kind of ups the ante, the more I think, you know, in the next coming weeks, potentially that could act as a bit of a renewed headwind for sterling as, as the prospect of a no deal becomes even more acute. However, I still think that this is like Trump. Johnson is just saying this for political payoff rather than actually a material, uh, kind of threat in that sense. Now, one of the things obviously that's come up here, if you read some of the articles I was sharing with you guys this morning, uh, this is something that Boris talks about a lot. It's something called Article 24, uh, it's called GATT 24, sometimes referred to. This is The GATT stands for the General Agreement on Tariffs and Trade, and what this basically is suggesting, it offers a way to avoid tariffs and border restrictions if the UK leaves the EU without a deal. The provision allows WTO members engaged in trade negotiations to discriminate in favor of each other without passing along those benefits to all members. However, the provision cannot be unilaterally invoked and and the EU is unlikely to agree to it because it would compromise the stability of the EU's external customs border. And furthermore, any WTO member could object to such an arrangement and demand it to be modified. So this is one of those, you know, this is what makes interpretation of Brexit a little complicated because of the general legal structure of how complicated a process it is to leave the eurozone, in particular with issues around the border. with Northern and the Republic of Ireland. But one of the things here is that, you know, again, this is one of those, um, areas of which Boris Johnson will be pushing this because in logic this would be a good solution to basically, if you have an agreement, you can go into this kind of limbo period where all things remain the same until you can get something more concrete over the line. The point being though is that The EU aren't going to accept that or agree to it. They've made that evidently clear. So as much as it might make sense in principle, in practice it's not going to happen. And this has even been ratified not just by the fact that the EU is rejecting this idea, but the UK's own trade minister, Liam Fox, has also dismissed the idea of this standstill tariff-free EU commerce deal. It's been downplayed by people in industry. It's been downplayed by the governor of the Bank of England. But again, this is one of those things where, you know, kind of the Boris Johnson, like Trump, he knows that this is not going to happen, but it doesn't really matter when it comes to cajoling public sentiment. Because by, by giving these options, there's not many people in the mainstream Joe Public who's going to be really bothered with reading the legality around the Lisbon Treaty and Article 24. So it doesn't matter from a public management of perception point of view. So I think, you know, Boris is a clever guy. He's playing this in a, as I said, in a Trump fashion. So to get support on this hard Brexit line. But ultimately, I still believe, and, you know, again, I could be very wrong, that the prospect of a no deal, I still put in terms of how Johnson is threatening I put down at between 5 to 10%. So obviously a possibility, but I think still incredibly unlikely. On an average on Wall Street, what do the US big banks think of a no deal? I did have a look at the weekend and the spread I think was Nomura is at about 20%, Goldman's is at 15%. I think there was one bank that was a bit more punchy at 30%. So, you know, averaging out at about 20%, I'd say. Um, okay, that's enough on Brexit because ultimately, as I said, this isn't really so much of a, a pound-sensitive issue. However, the, you know, how far the envelope gets pushed on the hard Brexit line from Boris over the coming weeks, um, could well start to weigh to a moderate degree, I would say. And again, same things apply as last week. Should he make any type of large mistake, making a comment inappropriately, and that starts to give Hunt a bit more of an advantage, I'd be seeing that then as the, the kind of opposite could be pound-friendly. However, it would need to be a kind of monumental misjudgment from Boris for that to occur, I would say. Moving off that, let's have a look at the other and the kind of bigger global macro issue here that's dominating sentiment. Day to day, and that is the one of China and the US. And the US is set to delay more China tariffs ahead of Trump-Xi meeting. So if you remember, the US initiated that 25% reset of tariffs in the previous amount. They threatened to do $300 billion of Chinese imports. But what's happening here is that basically the Americans have said Well, actually, according to people familiar with these conversations, the US could be willing to suspend the next round of tariffs. Now, one of the things here that happened before was that the Trump administration put a fixed 90-day kind of temporary freeze on the tariffs coming in. Now, I think that that won't happen again because Trump, it will be in his favor to prolong, I think, this current stalemate for as long as possible because obviously timing is key. And he doesn't want to— Sam's been referring to a couple of times in recent briefings— he doesn't want to shoot all of his bullets at once. He wants to manage the market's response in a positive fashion in time to fit his political calendar. So with that being said, I think the strategy, if I was an advisor to Trump, would be, okay, you can definitely freeze this current, but keep the— it's kind of the stick and the carrot approach. But do not put a definitive timestamp on this, even though it might be akin to 90 days. You basically want to roll this on as long as possible, keep the market effectively where it is at the moment, and then in months to come start to, to get closer to an agreement being done in detail, not principle. And then for the market to get another secondary lift on the back of that. So one of the things is, and I was talking to some of the, the Stage 2 guys here yesterday, was if you look at the S&P here, I think as well, not only is this a pullback on some profit taking of the exceptional rally that we've had and obviously instigated by the Federal Reserve last week, but this idea of kind of buy the rumor, sell the fact, beginning of last week was so positive with Trump tweeting, talking about extended conversations with China and so on at the G20. The market bought into that and immediately reacted, and we got up to retest those all-time highs. I think this is very typical of human behavior, that kind of overinterpretation of that statement. Markets rally, you get the Fed coming in committing to cuts, that gives it that secondary lift. You hit that profit target at the all-time highs. Now realization kicks in. As we were saying about a week ago in the Monday's briefing, a week ago, you know, we don't see any type of deal of, of significance getting done at the G20. It's just not going to happen. There's so much unresolved, complicated issues. All that we're expecting is that basically they commit to continue talking. So if anything, the market's already repositioning for this. And I think all that we can expect is the fact that, um, yes, the US are going to delay any tariff hikes. I think that's to be expected, and they'll probably commit to another point in time in the coming weeks, months where they'll continue this negotiation. The point being is then we kind of get a little bit of that positivity just fading. I guess the, the risk factor on the G20 is What if something happens between now and them actually sitting either side of a table that means that maybe the entire face-to-face meeting gets called off? If that happens, that's quite a significant step back from where we're currently priced, and that could lead to then a break of those— that quite, you know, key technical area probably around that 11th of June high, the retest on the 19th, and close to where we are at the moment. That could open up potentially a bit of a further pullback, uh, probably be looking then down through the 2900 handle to 94, uh, and then, and then beyond, uh, probably then 67.25, which starts to bring in some of the previous price action as well down here. But again, this would all be contingent on the lower probability of the fact that something happens and the, the actual face-to-face meeting gets completely called off. Which I'm not anticipating overall. What does this mean then for the Federal Reserve? Well, Powell spoke yesterday, and obviously what's going on with the trade war is at the forefront of Federal Reserve members' minds, and hence the reason why they've become so overtly dovish of late. Now, what's happened here though, as the headline would suggest, the Fed has pushed back on aggressive US rate cuts. In particular, not so much Powell It was more this chap, which was— if I scroll down— St. Louis Fed President James Bullard. Now, those have been in markets long enough will be very familiar with James Bullard. He is the outlying dove at present, but he does tend to be incredibly vocal. And of all the Federal Reserve members existing at this present point in time, he's probably the one that alters his view and flip-flops from being overly uber dovish to just mildly so. And he's kind of done that again. So James Bullard on Tuesday said he does not think, he does not think the US economic situation is dire enough to warrant cutting rates by a half percentage point at the next meeting in July. So don't forget, this was the guy that a couple of weeks ago said that he would be open to 50 basis points, now winding it back and saying, well, hang about, that's actually not true. And if you remember when we were discussing the preview for the Fed meeting last week, there were a couple of, couple of big banks and bond funds out there that were anticipating potentially the 50 basis point cut could be the next move. But if the uber-dove is not backing it now, it's basically not going to happen, because if he is the most furthest removed, then the neutral and majority amount, there's highly unlikely gonna— they're gonna back that policy move. So for me, as much as this is Bullard, you know, kind of flipping his view a little bit and altering his perspective, actually I think that this is a broader coordinated communication from the Fed in order to rein in market expectations, which I think are a little bit overdone on how aggressive they think the Fed will be. Remember, the Fed, the downside strategy to doing a 50 basis point move, albeit it might get you ahead of the curve and have bigger impact in the short term, but ultimately you are bringing down your available room for maneuver for future policy action in terms of the interest rate. So yeah, I actually think that this is Powell and the team talking to Bullard saying, well, look, you're a good person now to, to bring in some of basically this expectation. And this is the federal funds futures, of course. This is looking at the CME FedWatch as to ascertain market probability of— for a 25 to 50 basis point cut. The one thing that is still evidently clear here as far as the markets are concerned, despite this slight alteration in Fed communication we are still fully priced 100% for a rate cut at the end of July. The question mark being then, do we go 25 or 50? And the market is priced at the moment 73% for 25 and the smaller minority 27% for 50. But what I'd— I would be expecting, and obviously the outcome of the G20 could be pivotal to this in the short term, but beyond that, up until through July into the meeting all things remaining equal, then I would expect that this 50 basis point one would decrease and this 200 to 225 federal funds range will increase, which would indicate that they're only going to go 25 cut, not 50. Okay, quick look at other news headlines and I'll hand you over to Sam. These were the numbers from last night. If you remember, I did show you the, the graphic of, or the chart of WTI crude, which did jump overnight, breaking some of its near-term range of the week. And this was because we had a drawdown of a large magnitude, and in fact considerably larger than what markets were expecting, and marking the biggest drawdown in the headline figure since March. Cushing, a draw of 1.25 million. Gasoline, a draw of 3.17 million. And distillates, a build of 160,000. So that kind of sets the stall, of course, for the DOE oil inventories, which we'll get later on this afternoon at 3:30. And the other thing to mention was we did have the Reserve Bank of New Zealand, the RBNZ. They kept interest rates on hold. They said lowered the OCR may be needed over time and noted downside risk to employment as well as inflation, but also sees inflation rising to 2%. And if anything, actually, you've had a bit of an appreciation of the currency. This comes after— actually, the rate hold was as anticipated, but they did cut rates, remember, not so long ago. Markets are still priced for a cut, but maybe some of the language around that accompanied this decision, not quite so much to commit to, or unwinding of any immediate move as far as today's meeting was concerned. So Sam will look at the Kiwi, but the Aussie obviously tends to move in sympathy with this. And if you were looking at the Aussie future this morning, uh, it's been grinding up and it's had a bit of a retest of the high print that we saw from yesterday's session. That coincides with the R1 and the 70 mark, uh, in the Aussie dollar future. Uh, so maybe worth keeping an eye on. And don't forget as well, we've had that news in regard to the US, um, said who are believed to be set to delay the Chinese tariffs. And that also to some degree removes some of the tail risk about the imminency of, of the escalation of a trade war. And that is a net positive for Aussie as well as a proxy for China's Chinese economic health. All right, calendar-wise, quick look just to wrap up my part. And for this morning, it is particularly quiet. There is not a great deal going on. So with that in mind, I definitely would be taking that into consideration with any strategies and potential trade opportunities for this morning in terms of your, your profit targets and your general aggressiveness of trade. Getting into the US session, as nearly always the case, that's really where you'd be looking for the best kind of market movement, I would suggest, given the fact of the current macro kind of stories in play being so kind of Trump trade focused. I'd say the, the conservative leadership race is very much a political event at this point, not so much as an impactful pound situation for the here and now. So for the US afternoon, you've got durable goods is your main 1:30, advanced goods trade balance as well, and the oil inventory numbers of course of course at 3:30. Speakers, um, an interesting one, but just to clarify for any of the newer guys, you've got Bank of England's Mark Carney and MPC members Cunliffe, Tenreyro, and Saunders all speaking at 10:15 this morning. Now just to be clear, this is part of a TSC. TSC stands for the Treasury Select Committee. So this is where the Bank of England senior members of the MPC have a periodic meeting with members of the Treasury who basically are asking the Bank of England why is it they're doing certain things and how are they looking to manage certain situations. Very rare for the TSC hearing to provide anything in the way of groundbreaking new commentary. It's not typically used as a platform form for that type of policy communication or a kind of new insight into economic kind of interpretation. So I would be aware of this, but I wouldn't be looking at it as a kind of an absolute tradable event to that respect. All right, gonna leave it at that, and let's get, um, let's get Sam on the mic and he can look at the charts in more detail for the day ahead. All right guys, thanks very much. I'll be in the chat room and available throughout the the rest of the day.

Hi guys, good morning. Hope everyone's had a good week so far. Just having a quick look over the charts. I've seen gold come up with that, uh, double bottom trend line that's, uh, been on here. You can see just finding a bit of support, uh, in this market. I guess you've got to ask the question. I'm just going to remove the— some of the lines here.

Is—

have we just hit a top or not? Or is this a short-term recovery, bit of profit taking as well? To be seen. To the upside, I guess if you, if you do believe there's a long still in this, you can see the S1 previous low of the day, yesterday's low, is quite a key level, uh, key point to be monitoring Above that, then sure, we can push back higher. And you've got to imagine we'll, we'll be having a, a quicker move above there. So $1,414.1, quite a key level for gold, almost a line in the sand. If you're unsure of a bias for this market, well, that's your, that's your key, that's your cue to see whether, where price is going. So keeping a close monitor on that level there in what has been just an extraordinary run to the downside. If we were to, to see a break of these lows, you can see just below that, uh, we have the, the lows that we had back on the beginning of the week. So actually, you know, not far away from being pretty much flat for the week after such an extraordinary run. Not many people would have, would have thought that. But, uh, yeah, 14, 14.1, the level to keep an eye on. To the downside. If we were to— the upside— if we were to break through that, you can see there's other key resistance points. And actually, the market has been pretty technical as of late. Even last night when we had the breakdown, you can see the trend line, uh, put that on there. Decent break, decent opportunity. Uh, the R1s and acting quite well yesterday as well. So quite a technical market. Having a look at the, the EUR/USD Uh, from a purely technical point of view, S1 does look pretty, uh, important. Putting this on the 60-minute, you can see around that area— well, just above it, you've also got the, the high, uh, the low from yesterday, the high from, uh, the morning that we had, or the early afternoon on the 21st as well. It's a pretty, pretty key zone. Uh, the pivot is actually pretty important as well, was the low that we had back on uh, the Monday and then Tuesday around midday as well. So pretty key level. And then to the upside, just having a quick look here on the 15-minute, especially when, uh, you're looking for a continuation either way. This case to the upside will be worth having that trend line on from those highs. A really key resistance area for today is pretty much now the pivot, the trend line the previous levels of what have been support and then turned resistance last night as well. So pretty key zone from the pivot to the S1, and that's somewhere I'll be focusing on for the early part of the morning. But as I mentioned, it's going to be relatively quiet, so no need to go too aggressive on the market. Um, being squeezed from the high here, the pound, you can see quite well respected. If we have this trend line on from yesterday evening's higher point which was also the previous low of the day. Another market that's been quite well respected. You can see just getting squeezed through here on the pound. When you put that on a higher time frame, you can see maybe not looked by as many people. However, if we put this trend line on from those lows, you can see we have found quite good support around here this morning. So looking here, starting back on the, the higher point of the 17th. We broke through a couple of days later, and it's been well respected on that first test back today. So keeping, uh, certainly on the futures around just above 127 on this trend line. If that was to go quicker, move down to 127 and the S1, uh, somewhere I would have marked up S1 not far off that low that we had on the 21st as well. To the upside, and if you want to maybe get a faster money move this trendline breaking that we mentioned could be worth a shorter-term trade. But for now, price just getting squeezed in a touch. Aussie dollar being dragged higher by the Kiwi, which is actually— we'll come on to a moment— but it's on a key level itself. The Aussie here to the upside, and mentioned obviously R1, quite an important point. And you can see we just dragged these trend lines on just a bit above here. You've also got the round number, the 70, uh, handle. I'll be keeping a very close watch on, on what happens at this point here. Really key resistance. The move could also obviously push on if we were to, to go above that, um, but, uh, for now just coming— look, looking like it's gonna, gonna test that level. To the downside, areas of support, obviously previous highs of the day before that breakthrough, 16 98.7. Uh, S1 was a level we talked about in the briefing. If I just go back to that with the, the low from yesterday afternoon and the previous high, uh, that obviously came down late last night to get filled. Whether you would be trading around there, obviously Trump was talking, Powell was talking, uh, would have had to almost have your orders waiting and have been a bit lucky as well. That Kiwi, uh, is pushing and you can see here that similar uh, price action from those previous highs with that trend line. If we just draw that up, you can see that is literally just been hit now. So be interesting to see how this holds. Do we come back down? Uh, do we hold as a third test on this trend line? And therefore perhaps later on we could be looking for that level to break higher, and that could be the opportunity, uh, to get in, uh, there. Having a look at the S&P, and I'm going to start firstly on the the, the longer time frame here, pretty important where we closed yesterday. So I'm, uh, certainly a longer-term equity bull, and we'll, you know, still believe we make and get to 3,000, certainly in the S&P. But the fact we closed below the, the highs that we had on the 18th and 19th of June, 2936, uh, pretty key, pretty key. So I would say you know, that's your, your line in the sand for any, uh, any, uh, further push higher would have to, to go above that level. To the downside, I mean, 2915 is important. I like the look of a medium-term long from 2905 and 2900 just because I'm going to move to 2915. You can see just the importance of this area. Haven't come back to really retest it yet. Whether we can get down there or not in the coming days remains to be seen. Having a look at the, um, this more medium term, you can see just the importance of closing below the level I mentioned at 2936. Really nice support on those first tests. We then broke through. Yes, a bit choppy, but now we're below there. Um, I would favor looking to get short. A bit of a line in the sand maybe, uh, could be the, the previous low of yesterday at 2926 $29.50, you can see, was the previous low yesterday. We broke through and price is quite choppy around here. You don't necessarily want to get too involved. Just below today's low, you have the low that we had back on the, the 19th, which is obviously quite a key point. So here would be the key levels: $29.15, $29.05, $29.26, and $36, just above the pivot point. Having a quick look at oil to, to wrap things up. Uh, just coming down a bit here, um, the pivot, previous high. I do like the look of whether we could make our way down there. I'm not too sure. Obviously got the DOE later, but you can just see was the high that we had back on the 24th. Good price action around there around the 25th, so there'd be a targeted area, 58.20. I quite like the look of as a place to get long. Also having a look at the lows from yesterday and the day, the previous session before that, quite well respected from a trendline point of view, which as it would stand marks up quite nicely around there. Whether we can get to that point in at the same time remains to, to be seen. Uh, at the moment it's just breaking a touch lower, uh, obviously not near the low of the day as of yet, still about 20 ticks or so to go, and, uh, still up a dollar actually from where we opened, I believe. So API, obviously a decent push higher. Be an interesting DOE because of that. And going back to that calendar, it could well be— certainly, you know, with a quieter morning, the focus is on the afternoon. And durable goods and advanced goods trade balance aren't ones that are going to rock the boat as such. So maybe the, the DOE at 3:30 is the main event, other than, you you know, your couple of Bank of England, Fed, and ECB speakers throughout the day. Any questions, as usual, uh, please do let us know. Relatively subdued open on, on the DAX, doji of the 30 minutes and, and more for now. But yeah, any questions, please, uh, do let us know. I'll be on the chat obviously throughout the day, but I hope you have a good trading session.