US Weighs New Sanctions on China As Tensions Rise

Okay, very good morning to you. Hope you are well. It is Wednesday the 27th of May. Just before I begin, just a reminder that our next advanced trading program starts on Monday the 1st of June. So do give us— and we'll get in contact— give us a message or check out the link I think I've got at the bottom of on the red bar of this video and you can get more information. This is our intensive 1-week program where we use our own proprietary software with Zoom video technology and we work with a small group of individuals to really help advance their, their trading knowledge and expertise alongside the team. So I won't say any more than that, just check out the website if you're interested in more information. But let's just have a look at the charts this morning and a few things that are going on. And we had a little bit of a seesaw session, uh, at the end of Wall Street yesterday. And this came after we were generally moving higher. Remember in the briefing I was talking about a number of different things, namely about central banks continuing to offer further assistance, whether it's the ECB, the PBOC, the BOJ. You then had coronavirus for the moment still still relatively controlled at this point, and that's leading to further plans for economies worldwide to reopen, predominantly in the likes of mainland Europe, the UK, and in the US. And then, um, hopes of a vaccine— I feel slightly misplaced in terms of how quickly the belief is that they'll come to market, but that's still also in the mix, and that's somewhat overshadowing a lot of the trade war tensions that have been brewing. Some of the commentary we saw yesterday, of course, where it looked a little bit more passive in terms of any immediate retaliation from China, but I'm going to update you on that shortly. So that led to a generally positive session yesterday, saw a really strong move in terms of weakening in the dollar. Subsequently then, we saw equities move higher and T-notes lower, oil generally firmer on the session. Um, but we had a little bit of a wobble going into the final half an hour or so of trade on Wall Street. You can see that here, um, with the dip that occurred. This is really the final half an hour of trade, uh, in the US. Before then, we've ramped back up and even higher during the Asia-Pacific session. So any of that nervousness that had come about, and as I'll go into some news about US weighing further sanctions on China and their officials has been wiped out already. But on a daily continuation, and you can see these were the levels we were kind of looking at in yesterday's briefing, and we've got that, that area which we'd identified from the summer of '19 highs that also retested in the September period and support in late October, early November for the eventual push-up to all-time highs. And that area there acting as a, as a point of resistance to this meaningful rally that we've had. And we closed above 3,000 yesterday, and you know, this was the, the 200 DMA I've got marked up on the S&P future here on the daily chart. And actually just below that point was the close. We're above there at the moment, so I know there's a few people just keeping an eye on that for the, for the time being. So same rules apply, I guess, from key levels of significance on the upside. Now 3026, we're trading about, what, 12 points away from there at the moment. Any move above there, and that was, that was that other level we were looking at, 69.5. But we've obviously come a pretty decent way, so to see a period of consolidation between really perhaps the, the 26 and the 29.65 might well be on the cards until we see a kind of fresh catalyst to see a break of either direction. And with that then, why, why did we dip overnight? Let's get into some of the headlines. So US is considering a range of sanctions to punish China for its crackdown on Hong Kong, according to people familiar with the matter. Treasury Department could impose controls on transactions and freeze assets on Chinese officials and businesses for implementing a new national security law that would curtail the rights and freedoms of citizens within Hong Kong. Other measures Also being considered at the moment include visa restrictions for Chinese Communist Party officials, according to two people familiar with these discussions behind closed doors at the moment. So yeah, still tensions are brewing, as I said before, and it definitely warrants monitoring. But at this point, it seems to be, you know, a lot of, a lot of threats. A lot of this is kind of they're weighing these decisions. They've obviously got to go through a degree of congressional approval before they get implemented. So nothing is of an immediate nature as yet. And, you know, one of the key points here is that China is not immediately and forcefully retaliating in kind as yet. And that was one of the things that really epitomized that period of 2018-19, was that it got to a point where wherever the US went, China quickly came back and matched it. But China have been less reluctant verbally from the official channels to come out and, and kind of counteract what the US is saying. That doesn't mean though that they're not kind of going through the back channels, which is that Global Times editor— is it Hu Jijin? Uh, the, the chap who tweets, that very much is the, the voice piece in on the Western platform of Twitter. That we hear, and he has been critical of the US and their tactics. So definitely continue to monitor this situation. Trump basically, as a timeline, has said by the end of the week he's going to unveil more information. So definitely to be watched until that point because I'm sure he'll be drip feeding in little hints about what he's going to be doing before we get to that point in time. However, as I said, markets have recovered, and despite that slight move, uh, or correction. We actually gave up about half of the day's gains in US equities in that final half an hour of trade on the back of those headlines. However, it has recovered, and some of the things that have happened overnight are— this is one— basically Japan has come out and they've said that they're going to compile a new $1.1 trillion, which would equate to around £900 billion stimulus package includes significant direct spending. And this, of course, in order to counteract the— how deep the recession, or the, the largest economic recession that they're likely to see in some time. So again, more, more ammunition being thrown at the, at the pandemic situation, which has been received somewhat positively by markets, and that continues to, to take place. The other things of a similar nature are a lot of question marks, of course, had come about when the German Constitutional Court ruled about the legitimacy of the ECB's bond buying program. But quite interestingly, the FT had an exclusive, and you know, it's not a coincidence that a lot of these comments from ECB officials have started to ramp up, because next week, I think it's the 4th of June, we've got the ECB interest rate announcement. And so this is very normal, uh, you start to get them then offering a little bit of guidance going into this to get markets positioned in the right kind of way. And I guess one of these is counteracting the notion that the ECB are going to be unable to continue their bond buying program. And as we've heard from the officials over the weekend and yesterday, when this one more notably because it's a German ECB executive She acts as the, I believe, chief economist, Isabel Schnabel, and she only started at the ECB at the beginning of the year, but she's basically shrugged off that court ruling and she says the row does not directly affect the central bank. And she basically says the Bundesbank, she does not think, will be forced to stop participating in the program. So again, just looking to put to bed any of those potential concerns that may have reared their head going into that decision where it looks like whether now or at some point in the future the ECB is going to expand upon its quantitative easing program. And these are important mechanisms to help support, um, general market confidence because that's what it's built on at this point, particularly given the, um, how strong the recovery has been thus far in markets after that initial volatility we had in March. The other thing what we're looking out for today as well, and again you can see this is a kind of blend of monetary stimulus but also fiscal, and on the fiscal side we're looking out for some more information in regard to the European Commission President to unveil the Commission's recovery fund proposal. There is no set time as yet, although it is expected today, and it will require unanimous backing in order for it to pass. Pass. Now, this is what the headlines are saying in the Italian press, La Repubblica, this morning. Italy could be designated, uh, could be designated the country hardest hit by the coronavirus outbreak and ensuing recession, and thus that they could then get some 20% of the funds envisaged in the EU's recovery plan. And that number obviously is particularly large. That's actually more than what the plan originally in the Franco-German proposal was for this €500 billion Euro's fund. And so definitely I'll be keeping an eye on things like Euro BTPs or Italian bonds, probably worth watching, and consequently the spread over German bunds today. Because again, if it is more tilted, then all the more favorable it is for Italy if that is— that, that report in Italian press does come to fruition. So yeah, no set time, but, but something to keep an eye on. Otherwise, that is pretty much it. I mean, there's not a great deal else for me to comment on. Oil markets, if I just go quickly over to the WTI crude chart, we've kind of stabilized, if anything, this area here more recently in the overnight session, which is just around pivot. So that is $33.77, $80 up to the overnight highs around $34.32. Which was also the highest seen late in the US session. We're kind of just stuck around that, that price point at the moment. A couple things just knocking price just off the highs from yesterday that people were looking at was some comments out of Russia saying they're planning to start easing supply cuts from July. Obviously needs must in order to get prices as they were off the, off the floor. Russia, key component of that OPEC+ and kind of G20 energy-producing nations cutting supply dramatically and quickly. However, now prices have somewhat stabilized and we've recovered back up to north of the $30 handle, um, they obviously would prefer not to be cutting supplies so drastically given the impact that that has on their ability to generate revenue off that product. So yeah, the first tentative signs then potentially that Russia easing off. And we've also had, of course, you know, when we're thinking of simply the demand and supply with oil, then the trade war tensions escalating could have a negative connotation for the, for the demand part of that equation as well. So I don't really over-interpret those things at the moment. I mean, oil's come such a long way in such a short period of time. It hasn't really moved too much, but perhaps a couple of things here to cap the upside, which if anything means then that these, these kind of levels here now, which were 3466 in the July contract. So it's the high we printed back yesterday, and that was the high we had back on 21st in the prior week. And so perhaps that's going to act as a pretty decent level of resistance now on the upside, just giving some of the fundamental developments there. From a calendar point of view, what have we got today? Well, we've already had the industrial profits out of China from overnight. And in fact, you know, also helping a little bit with that overnight recovery, Asia Pacific session, in terms of sentiment-wise, um, that data came in and Chinese industrial profits for April showed a decline of 4.3%. Now that obviously doesn't sound great, it's a negative number, but the prior month was -34.9%. So definitely has improved considerably, uh, from where we were in, in March, which is taken as a little bit of a relief in that sense. Otherwise, as we go through into the session, it is particularly quiet on the calendar, uh, for today. Nothing major coming out of UK and Europe this morning, and really nothing major coming out of the US session either. You've got Fed's Beige Book, that's that kind of reserve bank levels, if you like, so a more closer examination of these more localized type economies in Philadelphia and Chicago, San Francisco, New York, and so on, can be quite interesting in the context of the fact that we're, you know, we're trying to ascertain then what is the depths of the current pandemic situation in terms of its economic impact and just generally get a bit more of a granular look at different things. Like inflation and employment and so on. Otherwise, you've got the API inventory numbers coming out after market as per usual, and then this EU Commission presenting the recovery fund proposal, uh, time to be confirmed as yet. And that will be something that could be meaningful as well to look out for. The calendar here does note that the Commission President is going to be speaking from just after midday London time onwards, so could well be that that's when we'll, we'll hear the details on that proposal, in the early afternoon UK time. Now, speaker-wise, Christine Lagarde does speak, is at a European youth event, and so maybe unlikely to comment on anything more explicit on monetary policy or the economy or forward guidance, but nonetheless worth keeping an eye on. Remember, if there is any surprises to come out of the ECB when they have their meeting next week. And generally what you tend to see is as we get closer toward that event, all the more that these officials need to kind of put out these various hints to get the market fully prepared and priced then for the eventual outcome, if in fact they are going to make any types of changes. So once these officials tend to go into their, their kind of more formal blackout periods when they're not allowed to speak That's where you've got to be keeping an ear out, an eye on the press and the newswires for any potential sources and leaks and things like that. Typically, um, source reports about these types of things tend to come close to the actual event in itself. Otherwise, de Guindos speaking later as well this morning, and then you've got Angela Merkel holding a news conference on COVID-19. Could be quite interesting at 2:15. And then Fed's Bullard, non-voter these days but quite a vocal member of the Federal Reserve, speaking at 5:30 in the evening. And then from a supply side, you've got gilt auctions coming out the UK, and then you've got a 5-year note coming out of the US this evening at 6 PM. So that is it. I'm not going to go any further than that. I'll leave the charts for you guys to look at. Obviously Sam is available on Twitter. If you just look for Sam North, if you have any questions on the technical side, I'm sure he'll be more than happy to help. But otherwise, any questions, just feel free to leave a comment. Don't forget to subscribe to the channel, uh, and I look forward to catching you guys tomorrow. All right, thanks very much, take care.