US tariffs target EU but markets don't care

Okay, very good morning everyone. Hope you are well. Tuesday, 2nd of July. So quick overview of what we're going to discuss actually, rather than me share the headlines straight away. Excuse me, let me just have a look at the screens. And you know, I guess as you become more experienced and you're looking at markets day to day in the intraday environment, obviously when you, when you on your way to work, you've probably got a pretty good idea of how the land lies in terms of you read a lot of the news stories and market wraps and so on as you come in. But definitely turning on the charts gives you the immediate clues as to what's going on. And, and the point being there is that there's not a lot, there's not really too much more for me to, to fill you in on. A couple of updates on the, on the Trump, this time on the European side, OPEC confirmation, RBA also doing as expected largely and cutting rates overnight. But other than that, it's pretty quiet, and I think that's reflected across the, the asset classes we're looking at here. So most of the assets here are fairly flat. Stock index futures, very much the case, and that's really reflected in the currency pairs. Gold a touch higher, up about $5. I'll leave Sam to look at the technicals behind that. There's a couple of nice levels playing out, looks like a trend line as well. So One of the overarching themes though being that despite the positivity developing from the trade truce between US and China, ultimately the global economy is still in a fairly precarious state, as epitomized by the weakness in the PMI data that we've had on the manufacturing side over the course of the last 24 hours or so. So keeping gold a little bit elevated, and don't forget gold I'm trying to think what the stat was. It had what, its biggest sell-off yesterday in a year. So, uh, well, in terms of the repricing and the gap down and falling through that 1400 quite aggressively, um, so natural recovery of that move I don't think is too untoward. And then elsewhere, WTI crude, we'll look at that in more detail in a second, but ultimately it seems a case of a little bit of buy the rumor, sell the fact when it came to the confirmation. And we'll be looking for the definitive kind of conclusion to the OPEC+ side of proceedings today on that 9-month extension. So before I just move on to the headline, I just wanted to quickly look at the S&P 500 because quite a few questions obviously from the kind of newer traders yesterday about, you know, how do you feel about the, the equity, uh, gap up, and then where do we go directionally from there. This is kind of casting us— mine— our minds back to this time yesterday. And you can see you had that really aggressive, um, gap higher on the back of the, the positive developments, the lack of escalation, if anything the opposite with the, the China and US news that came out. Markets then pulled back. And overnight, I mean, this is quite typical, I would say, of the way of which speculators would be looking at this, trying to identify the best point of entry. And rather than waiting for a complete pullback down to the initial closing price that we had in the futures trade on the, on the Friday, they've instead looked to the, you know, mathematically calculated pivot level as the same level of which obviously that everyone is looking at as reason then to get long because maybe a little bit of profit taking, the fact the market on the gap a little overdone, but still ultimately in the short term at least playing that idea that this is a net positive for sentiment. And then we moved higher only then to hit where we were defining now is the record high level, 81.75, and a little bit of profit taking again to ensue to through the US afternoon. I understand I was off the desk, but ISM Manufacturing, although better than expected, does show continued slowdown as well. So very much mimicking that, that kind of global environment. But interestingly, from a technical point of view, pretty much played out, or did, to the tick. So yesterday evening, before we went into the last hour of trade on Wall Street, where really it just ramped into the final hour of trade quite aggressively. But the entry point there on the technical side coming exactly where that Friday high was. So again, using the pivot, uh, was that first overnight for the, the kind of— it was about 1 AM at the time if you were there looking Sunday going through into Monday night in the overnight session. But then late yesterday evening on the pullback to that level and people using that as a re-entry for that long I think that is quite, uh, a prudent play because ultimately, although the PMIs are weak, I think the development on the trade side was, was meaningful enough to keep— at least I would be imagining that all things remaining equal, we should, or likelihood, trade within this now range given the fact that we've got the Independence Day holiday, of course, on Thursday. U.S. markets will be completely closed. I wouldn't be surprised to be looking at that as the predefined range now, at least until we get payrolls. And talking to Sam this morning, um, one thing with payrolls is that a number of Americans could well be out of the market, which could impede then the normal liquidity. And so it could be quite a volatile affair given that fact when we see the jobs data hit on Friday. So at the moment where, where the S&P is sitting, just looking specifically at the S&P, I mean, I wouldn't really have any interest in it at this present point because as you can see, it's absolutely bang in the middle of the range of what was yesterday's high and low. So unless we come to those upper lower bounds, it's probably not an instrument I'd look at too much in today's session. Anyhow, let's crack through the headlines. Uh, as I said, there's nothing here particularly, um, exciting to the point of which is moving markets this morning, but I think warrants the recap of the, the current status. And now that, um, the situation at least for the next week or two has probably moved away from China, Europe's back in the spotlight. And the headline featured on the kind of front cover of Bloomberg this morning is the fact that the US have added more EU products to a list of goods it could hit with retaliatory tariffs in a long-running transatlantic subsidy dispute between Boeing and Airbus. I think I was reading it this morning, and the US claiming that basically America's lost out on about $1 billion worth of trade on the fact that, you know, the subsidy the French government has with EADS and Airbus unit and how they get a benefit on the back of that. And so what's happened, the Trade Representative's office in Washington yesterday has published a list of $4 billion worth of EU goods in target of retaliating against these European aircraft subsidies that are in existence. Now, a very important point here, the reason why the market is not responding really too much or too bothered by this news is, is that for one, this isn't really new. This has been an ongoing dispute for a long period of time, way supersedes the current kind of trade war instigated by Donald Trump. And then two, this is just adding on top of an already existing list valued at about $21 billion, of which the US had already proposed back in April. And $4 billion, I guess, in the grand scheme of things, relatively smaller amount. So But for that, this is why this isn't really a point to dwell on, I would say, too much at this point from a, from a global macro point of view. But I guess what I would be looking out for is if Trump tweets on the matter, if Trump goes beyond just targeting a response to European aircraft subsidies into something more European-wide, particularly he's been quite vocal about the automotive sector, which of course the American market is quite critical to a number of the German manufacturers. That could be something of more interest that could create a little bit of negativity in European equities if that type of headline comes. The other things, of course, you saw this yesterday, uh, so for anyone who's new to markets, you probably sit through my initial commodities lecture where I'm explaining about the, the communication style of OPEC couldn't be any more different to the kind of very structured and coordinated way of which, um, central bankers talk. And that being that, you know, there's lots of headlines coming out. I guess the, the one thing that made yesterday a little bit more manageable is what the outcome was already very well telegraphed by by the fact that, that Putin and Mohammed bin Salman have already really given the game away, that they'd made an agreement. And when an agreement happens at that level between the de facto kingpin of OPEC and non-OPEC, well then the rest is just a formality because, you know, those other smaller countries don't really have the, the political kind of clout really, or the production physical clout to make a great deal of difference. Um, 9 months then is what's been agreed. The decision needs to be ratified by non-OPEC allies, so we'll be looking for that to happen later today. So in terms of the timing, here's a reminder of that schedule, just so you don't get caught off guard or by surprise by anything. And these are Vienna time, so they're an hour ahead. Opening session, 9 AM London. Closed session 10 o'clock, joint press conference. We'll be looking out for midday to get that confirmation. I would say a bit of a non-event now, but interestingly, I think you got to let the price do the talking. And we kind of gapped up here, just looking at WTI crude. This was the gap up on the fact that, you know, the, the lack of escalation, positive noises coming out on the trade talks of US and China at G20. That helping, you know, mitigate any concerns and relief on the demand side. But then rallied up, got up to around that $60 level. But you can see really, as the confirmation started to come in in the afternoon, markets started to pull back. And really, I think this is more of a kind of buy the rumor, sell the fact. But I guess from a current state of play, it does go some way to show the market now if OPEC really want to kind of give the market another shot in the arm to bolster prices, if that was their objective, well then they've got to do something more powerful now because an extension out until the early part of 2020 is now very much factored into market prices. So unless they deepen the cuts in itself or they roll out further into the entirety of 2020, um, they're kind of losing their ability to support prices up and around these levels. So yeah, interesting to see the oil really not responding too much on the back of that, but I guess it's because it's filtered in over the last week or two. We kind of knew that was going to be the case to some degree. Other things that have happened overnight, the RBA, the Reserve Bank of Australia. If you're coming in, you'll probably realize that there's been a little flurry of price activity in the Aussie overnight. So let me just quickly show you. This is the Aussie dollar. Um, so you can see that really very quick momentary blip in the price action of the Australian dollar, but unsustainable. Now, um, just flicking over my chart, so this is when the result came out. If we put it back onto a minute just so we can see the way the price reacted, you can see confirmation of the rate cut, a little spike lower, and then we rallied thereafter. Um, reading between the lines here, the reason for the cut— don't forget, not coming completely unexpected. In fact, the majority of analysts on Wall Street were expecting a rate cut on the balance. So, uh, first back-to-back rate cuts though that we've had in Australia in 7 years. The main focal point of course coming as inflation pressures remain subdued across the economy. I think that was an interesting chart they had here that basically stated that the RBA has cut whenever annual CPI growth has fallen below 1.5%. So kind of repetitive patterns around some of these key objectives that the central bank has, which is in creating price stability and inflation around its target. Um, not only that though, obviously growth has been, um, faltering. You've had a housing crisis for some time, albeit now seeing some signs of stabilizing. And so another kind of preemptive cut taken back to back now by the RBA. But I would say at this point, now that interest rates are getting down to around these 1% levels, then, uh, I think that's pretty much potentially what we'll see for the moment. So perhaps that explaining then a little bit about the idea that they've kind of hit their objective now of what they wanted to do. We're 50 basis points lower, uh, and now we're going to sit on our hands and wait to see how things unfold for here on out. Certainly if the China-US situation stabilizes, that's another positive development as well, albeit granted that's a situation in flux. Given how volatile politics can be. But Aussie overall, other than the blip, unsustainable move, and we're pretty much back to where we were. If anything, back above pivot in the futures. Italy, this was something to be aware of because we're— it's something that's been ongoing of course for a while, but this is absolutely gone as you would imagine with politics thus far. The Italian politicians make a big splash to cajole public sentiment, you know, really fueling that nationalist feel, certainly under the leadership of Salvini, in saying, you know, hard stance against Brussels. No, we need to have very ambitious spending bills and reforms made, which of course requires high amount of government spending and accumulation of more debt. Which Brussels obviously are very much against because it's in breach then of the rules that they've put in place. So what's happened— and this has happened, it's almost like, it's like a broken record almost— Italy comes back and Italy says, okay, we'll cut 2019 deficit goal to 2% because we don't want to trigger this legal procedure that could lead to a large, sizable, multi-billion fine on the country, which given its current financial state could be— have dramatic consequences on the country's ability to borrow going forward and their sovereign creditworthiness. So they've tweaked basically this budget proposal in aiming to appease then the European bureaucrats. Whether that is the case or not, basically there was supposed to be a hearing on Italy today but because Europe are at the moment trying to get together what is their, uh, their existing team. A lot of headline leadership changes happening at, on a European level in Brussels, and so it's been on the back burner at the moment. But this is kind of one of those subjects which is lingering in the background. It's not really a focal point of which I would use fundamentally to judge or make I'd say, uh, a trade as such, but it's definitely worth monitoring. Having a look then at the calendar for today, what have we got? Um, fairly quiet overall. You've got the UK construction PMI coming out at half 9. Uh, I think if you remember, the manufacturing number, the weakest since 2013. Uh, of course, the uncertainty surrounding Brexit that is causing a lot of businesses to kind of hold back at the moment, and that's transpiring now into the, the weakness in UK data. Otherwise, the construction PMI, lesser market moving, I would say, and it's expected to remain in contraction. The services one coming tomorrow obviously is, is going to be the most interesting. Otherwise, from the US side of things, again, pretty quiet. The API crude oil inventories, of course, not coming until later on in the, in the evening. For speakers, you do have RBA's Lowe said to be speaking at 10:30 this morning. So just given the context of the recent meeting a few hours ago from the RBA, could be worth monitoring if you're looking at the Aussie. Fed's Williams, a voting member, speaking on a panel discussion which does include global economic and monetary policy outlook. So for sure I suggest keeping an eye out for that, 11:35. Then this afternoon, Mark Carney, the Bank of England governor, is speaking, but this is a local government conference in Bournemouth. I wouldn't be expecting too much from Carney at this point. It's not— definitely not a platform that he would typically use to say anything of substance on policy. But just to be aware of that, be at 3:00. And then Fed's Mester, a non-voter, speaking later on at 4 o'clock. So that's what's on there, the calendar, um, in terms of cable. Nothing really too much to mention on Brexit, certainly nothing I'd say from a trade point of view, but just keeping an eye on cable. We are just coming close to retesting the initial, uh, late Asia-Pacific low that we had. All right, on that note, let me just change over my screens. and I'll swap with Sam, and then he can come on and talk you through a few other things as well. So just give me one second. Just trying to find Sam's name. I can't have him on the screen with my name. He'll have words with me after the briefing. So looks like his name's moved on my control panel, but I think I found him. Here he is. Okay, all the best, guys.

I think we can all be in agreement that had been a massive compliment to Anthony to have me over his name. But just having a look here at the charts, obviously that gap fill in equities was something people would have been eyeing up all day. I mean, for it to come in around 7:30, 8 o'clock, I guess you could just argue how much you could have got out of it without having to hold it overnight. Really strong support there, and that's going to remain a level that people will, will have marked up on the chart for sure. To the upside, obviously just seeing a bit of a downward movement here, but to the upside, if we were to keep pushing on, you can see that 2973, certainly a level I'd have marked up bit of support before the, the push down post-cash open, and then the resistance after that had occurred. So that's somewhere I would, uh, would have marks up on the chart. Now we are just seeing a bit of a, a push lower here, uh, in, in stock. So to the downside, from where we're trading, the, the lows of the, the morning, uh, 2960. But of course the S1, yesterday's low, the gap fill, very much the most important level here of interest. And just having a look over at the other equity markets, that gap fill in NASDAQ has not come into play yet. So that's one that I would, would have marked up a level of interest, 7727. Whether we can get back down there today or not, obviously time will, will tell. But if we— if the reaction we saw from the S&P is anything to go by, I would definitely be keeping one eye on that. Uh, the Dow complete the gap fill first, uh, around 5:30. We then got down towards the pivot area before finding a bit of support, but not, not as, uh, as interested in, uh, recovering into the back end of the session. The key level I would say for, for the Dow, just above the pivot, a similar sort of low before the breakdown we had in the afternoon so 26,747 on the, on the futures. But we are just seeing, uh, just stocks in general here to come under a bit of pressure. The DAX obviously leading the way, as you'd expect from 8 o'clock open. We are just, however, coming into a bit of support from yesterday evening on the DAX. So unless that was to really go, I wouldn't be getting too excited here. But you are just getting a slight bit of, uh, risk-off this morning. And speaking of safe havens, uh, that reaction in gold to equities dropping lower, just seeing a bit of a tick higher. Certainly looking at this from, from yesterday's, uh, price action, we never got near to having a go at trying to fill the gap. So that's something that I would still be thinking about from a risk-reward point of view throughout the, the course of the, the day or week. But also, before we get there, you would have to, to get past this potential trend line and the R1 and a lot of a lot of selling from, from late yesterday. So before getting too aggressively long above where we're trading, you know, I'd say this is your, your line in the sand here where we really struggled to get above. And of course, 1400, just a bit above where that would be as well. To the downside, the pivot you can see offered quite good support this morning. And I guess if you are looking for the the, the move to come lower. Same sort of way of looking at things in that probably the break of a trend would be a good way to, to get involved. In between the two, probably not worth getting, uh, too aggressive if already not in a, in a trade there. Have a look over at the currencies. Euro, uh, is it— I guess it was, it was a tricky one, uh, yesterday initially on that, that retest that we had back on the the lows from, from last week. You can see spiking through, pull coming back down, helped by the slightly stronger US data that helped push us down. And now if we just have a quick look over at this on the longer chart— let's move that around— the fact that we closed below the all-important top of this trend, just put that on there roughly drawing. Give me one second just to modify that. There we go. So the fact that we've now closed back below this, this trend channel, this would be something that I'd be looking for. It'll perhaps the retest of that area for a level to go short. And then to the downside, there's a point of support support, you've got certainly on the futures just a little bit below where we're trading. So even if we were to push lower here in the euro, just be aware the highs that we have back on the 19th and 18th of June will be key, uh, before we can perhaps push lower and then maybe get a test of the, the trend lines from the lows of the year. So putting that back to, you know, the shorter time frame, you can see just the importance of this trend channel. Yesterday, initially in the morning We found really good support around 8 o'clock before that breakthrough, uh, quarter past 4, and you had a further push from that. That looks to mark up around the pivot, and along with the, the lows that we had from yesterday on that trend channel, uh, could be a good area to look to get in. To the downside, you can see a break of the low of the day, probably not the best risk-reward, uh, to go short because of these lows, uh, highs that we had back in, uh, in June as mentioned. Uh, the pound, as I said, not too much going on really. We had a retest of the, uh, the bottom part of the range yesterday. We had some weaker data out as well, a couple of good opportunities to get short, although small range, uh, there for the pound. And despite the, the dollar strengthening yesterday, didn't move anywhere near as aggressive as the euro, uh, despite that really bad data. To the downside, 1.2658, the high of the 17th. Could argue that's a supporting price for now. I think with both the euro and pound looking for short, if we can just drift a bit higher up to get a better price for that. Having a quick look over, uh, other markets, the oil, just to wrap things up. You can see not far off the, the middle of the, the weekly range so far that we have that gap fill almost coming into play. And that level still is something I'd keep an eye on. Yesterday's low, S1, and then the, the sort of the highest point that Friday closed at, that's something I would have marked up. And what offered quite a good trading opportunity yesterday was that break of the morning trend as that went through. Obviously it's relatively rough sort of trade, uh, trend to have on, but you can see a similar thing happening here. And perhaps waiting for the afternoon and this break of the trend for a short, if that's what you're interested in, uh, is not a bad, bad idea to have marked up there. As usual, any questions, please, please do let us know. I think for gold, just waiting for a break either way. Despite stocks just coming down, I wouldn't get too aggressive just yet unless we were to, well, almost break the levels we're trading at now. And those trend lines that come in, certainly here for the Dow and the S&P, you can see while it's a bit more steeper, you can see I, I, in the early hours we did break through this. So maybe sentiment just to the downside at the moment, but not one to get too aggressive with, I would say, right now, just given the, uh, the open that we've gone through in Europe. Hope you all have a good trading day, uh, and I'll catch you in the chat. But of course, any questions, please, uh, do let us know.