Will The US And China Reach A Deal?

Okay, very good morning to everyone. It is Thursday, 21st of November. From my side, really two main things I'm going to talk about, and that is the, the main topic of course, which is the ongoing negotiations between the US and China on the Phase 1 trade deal, and where are we at the present moment in time, what is the stance of both sides and what's the kind of outlook going forward and the repercussion for market prices across assets. And then also going to have a quick review of the FOMC minutes which came out last night. As you can see on the charts this morning, no real sustained impact on market prices, but they're the main two subjects I'm going to talk about. Then I'll hand you over to, to Sam to talk about the charts a bit more from a technical perspective. But looking at market prices at the open, So obviously here I've got the different products. Top left, euro, followed by cable. Top right, gold. And then the DAX center left, NASDAQ in the middle with the S&P 500 future on the right. And then WTI crude at the bottom, still holding on to that decent leap in prices we had yesterday following the infantry data, and particularly emphasis on the Cushing figure. I think it was the biggest draw there that we had since August, I think, from a statistic. Uh, Treasuries pretty flat overall, um, just down 1 tick for the moment. So overall, uh, currency markets, very little change. Uh, there's some pretty chunky vanilla option expiries to be aware of for later on this afternoon, which could mean that price activity in those both major pairs could be fairly contained around those levels. And I'll, I'll go over those as well in my part of the briefing. Equity index futures in Europe off to a slightly negative footing following the lower close that we had on Wall Street last night. The Dow was down about 112 points at the close. I did see a headline— I generally check the FT app last thing just before I go to sleep, and I was just reading a couple of stories. If I've ever— if I'm ever off the desk, definitely that's you know, a way that I keep on top of things. And there was a headline that they were breaking on the market section, and it was kind of like dramatic, sensational: US stocks see the biggest sell-off since October. And I was like, well, hang about, that's only a couple of weeks ago. And albeit we're only, what, a percent or so off the all-time highs? And what, the S&P was down 0.8%, something like that. It's like, look, let's just calm down a little bit for the moment. But obviously the main talk of the town is still on the outcome of whether or not we can get a definitive agreement, a conclusion to the ongoing trade negotiations. So let's start with that. And this is the headline that's being run on Bloomberg this morning, and this comes from a dinner with the Vice Premier of China last night, who also acts as the chief trade negotiator on behalf of China. And at this private dinner, he basically said, quote, he was cautiously optimistic about reaching a phase one deal with the US, even as talks continue to stretch out amid the tensions in Hong Kong and some of the other remaining issues. To remind you, in terms of the timeline, if a deal cannot be struck at the moment in terms of this phase one part of the, of the deal, then what happens is If nothing happens before December 15th, Trump has threatened to impose 15% tariffs on about $160 billion worth of imports from China. Now, the reason why this is quite interesting is because China remains relatively optimistic. If you remember, going back from the beginning of the month when equities really started to rocket and we hit those fresh all-time highs at the beginning of November, this was very much a kind of optimistic China looking to make, you know, some progress. And it was kind of over to Trump, really. And I think Trump had slightly miscalculated how quickly China would come to the table, because then it was kind of, well, all right, do you want to do a deal or not? And you remember about a month ago, Trump actually said, his own words, that we're about to sign a deal. And that was the cue for equities to rally to all-time highs. But here we are again. He's kind of managed the stock market up to these unprecedented levels, but he's been reluctant to sign a deal because he doesn't really want to fire all of his bullets at once. And I totally understand that from a strategic point of view. It's whether or not we can figure out the timings of— do equities consolidate here? One thing I would say from reading the press this morning, everyone seems to be quite bearish equities. A lot of headlines saying about how overbought we are. There was the most ridiculous technical indicator I was reading on Bloomberg this morning that I've never heard of in my life that apparently is signaling that equities are going to sell off. Whether that's true or not, you know, remains to be seen. But it almost feels to me that if everyone starts becoming overtly bearish, just the glimmer of positive news is going to squeeze all those guys out and then we get all-time highs again. So I don't know, I think it's, um, I'll leave it to Sam to talk about the charts. I definitely feel like if we did see a meaningful correction, I still have the belief that I'd want to have a bias of being long, picking a decent level of entry lower, lower down from where we are at the moment perhaps. But I don't think also on the same token, I wouldn't be completely surprised if we just continue to remain up at these all-time highs, if not hit new all-time highs, uh, in that respect. The reason why the China comments are quite surprising about cautious optimism is because this happened, and this is something we were talking about yesterday, which could cause a real deal breaker really for, for China. Because on Wednesday what happened was the House voted 417 to 1 for legislation supporting Hong Kong protesters that has already been unanimously approved by the Senate, and it could go to Trump to sign as soon as today, according to people familiar with the matter. Now, what has Trump said on this matter? Well, he's already said that he doesn't think China is stepping up in trade talks. Now, everything that Trump says for me, you've got to put into context of where is it that he's saying it and what is the political context of that moment in time. Now, what was happening in Capitol Hill in Washington was they were, you know, the usual kind of witch hunt saying how, how bad Trump is. He's been involved with all these underhand dealings and so on and so forth. So obviously he was particularly vocal on, on Twitter yesterday about those particular particular subjects and, and calling out the Democrat Pelosi and things like that. The other thing, of course, is that where was Trump yesterday? Well, he was at a manufacturing plant in Austin, Texas. So again, you've got to think, what is he going to say when he's in that type of geographic location in the US? I mean, of course he's going to start ramping up the, the rhetoric anti-China because it just it resonates with the particular audience in that localized area. So I don't know, Trump saying these types of things, I think, is a little bit of just kind of managing of the situation. But the one thing for sure here is that, you know, Hong Kong is a real sticking point potentially, given the escalation of the violence that we have seen and disruption it is having on the local economy there. But Trump said he doesn't think China is stepping up in trade talks. So quite, quite opposite to what the trade negotiator of China has been saying, given his optimism. Now, a couple of things here. What is this bill? Well, the bill would require— so let's just go back to the one that passed yesterday— the bill would require annual reviews of Hong Kong's special trade status under US law and sanction officials deemed responsible for human rights abuses and undermining the city's autonomy. The House also passed another Senate bill that would ban the export of crowd control items such as tear gas and rubber bullets to the Hong Kong police as well. So final point on here that I'm going to talk about is the interesting thing was, again, as I said, where was Trump talking yesterday? Well, he was talking at a manufacturing plant. What does the manufacturing plant do? Assembles parts for Apple. So what was the other headline that came out? Well, Trump is considering whether Apple should be exempt from China tariffs, and he was talking about the fact that, you know, it's unfair because Apple has competitors like Samsung, for example. So obviously he wants American firms to be strong, and opening new manufacturing facilities that are critical for such an influential and important employer in the US such as Apple. So it's interesting. Tim Cook, I think, has done an awesome job. I'm sure politically Tim Cook has some difficulties being aligned on several issues with the US president, but the point being is he's putting his corporation at the front of his priorities. And that is, well, better to be, better to be friends with your enemies rather than go against them. And so by aligning himself quite neatly with Trump— he's actually done this before— he's managed to get his company exempt from any tariffs. So Apple, be interested to see whether or not there's any kind of response to that in their stock price later. The ultimate conclusion here is that a very familiar graphic, of course, we've looked at this many times, but it still remains absolutely relevant, and it's almost its simplicity which is, which is key. And that is, is that we have this market rally, we hit all-time record highs at the beginning of the month, it was looking all but a done deal that potentially not just, you know, eliminating tariffs but the rollback of tariffs would have been such a positive development, and markets really responded to that. However, comes reality, no progress is being made. The administration, as per the comment from Trump yesterday, doesn't think China's stepping up in trade talks, gets tough on China. What then subsequently happens? Well, there's a risk of a potential market sell-off, only then for the whole cycle to repeat itself. So definitely quite interesting. The other thing though, of course, which Trump also has, um, as potential other means to, to kind of manage this is obviously the Fed and the Federal Reserve. And what did they say last night about their current view of economic conditions, um, that was part of their discussions that formed their third interest rate cut that they executed at the end of October? So to give you a broad brush summary of what was said, Many participants saw downside risks to the economic outlook as elevated, quote, further underscoring the case for a rate cut at this meeting. So that's fine, we know that was the— that was the case, and that kind of validates the action that they've taken. Now, in particular, risks to the outlook associated with the global economic growth and international trade was still seen as significant according to the minutes. They said the risk that a global growth slowdown would further weigh on domestic economy remained prominent. Uh, central bankers did use part of their meeting to discuss the ongoing review of other possible policy tools, and apparently that did contain some light discussion about the idea of negative interest rates. However, the minutes explicitly said all participants judged that negative interest rates currently do not appear to be an attractive monetary policy tool in the United States. So they were— I think this is the kind of central bank strategy, generally speaking, is that they don't want to spook the markets by just saying it's an option. This is very traditional in the way they tend to bring about these new unconventional ideas as options on the table for future use, whether that happens or not, is to just very loosely say, well, we've had a discussion, but it's not really what we're looking to do at the moment. We know that then that gives them the most flexibility, that they can then utilize that in the future if it was necessary, but also tame the market fears that you're also willing to look at these extra options, which means that potentially you never actually need to deploy them. Because if the markets know that you're discussing these things, that's almost enough to shift the, the kind of psyche of the, of the herd, if you like. And then markets start to rebound knowing that central banks will do whatever it takes. Um, the FOMC wrestled the option of introducing a permanent program, if you remember, to manage that temporary liquidity squeeze that we saw in the money markets. However, they reiterated at the moment they'll just keep up their Treasury bill purchases into the second quarter of next year. They're not looking at anything more permanent at the moment, and I think that's absolutely, again, pretty much the same strategic planning or idea as per my, my explanation of the idea of talking of negative interest rates. No need for them to talk about a permanent repo facility when they're already active in what they're doing for the next 3 months, essentially. So overall, no real shocks in the minutes. Remember, they're quite dated. Of course, Powell spoke to Congress last week, and we've seen a whole plethora of Fed speakers since the October 3rd rate cut. So I think the minutes have happened, uh, no shocks, no real insight as to— if you remember the briefing, what I was saying yesterday, what would create then this new level of pessimism that could then hint towards trigger points to, to, to push them towards a cut. So for the time being, I think the Fed remain on hold. Um, with that being said, let's actually— let's get it up. Let's have a quick look at the FedWatch tool on the CME and see where Fed fund rate futures are giving implied probabilities for the next rate cut. So you can see interest rates actually, uh, we're 96.3% priced that we will remain on, uh, on hold from where we are at the current rate. There's actually 4% of the market pricing in a rate cut— a rate hike, sorry— in December. So how quickly things have changed from where we, where we were just a couple of months ago. So if we go out to the January meeting, still on hold. March, still on hold. April, still on hold. June starts to look a little bit more potential room for cuts. And then you've got to go all the way out to basically July well, actually, an actual tipping of the balance for a rate cut, the highest probability is not until September of 2020 now. So definitely there's been a distinct and meaningful shift by the Fed that this mid-cycle adjustment has now been executed, and they're on hold for the time being, not unless there is something meaningful that develops in the economy. So as long as economic data holds up, as long as there is not an explicit market fallout by a complete breakdown of the trade negotiation between the US and China, the Fed are on hold for the time being. Okay, the final thing I was going to mention was this. I'll take a copy and paste it into the, into the chat room for those who need it, but this is a bit of a summary of the option expiries due today at the New York cut. So if EURUSD at the moment— I mean, the futures is trading around 1.1094, the spot will be relatively similar. But in EURUSD, there is 1.4 billion rolling off at 1.1090. In cable, there's 1.8 billion rolling off at 1.2990, 1.30 today, and another billion at 55.65. So the way to interpret these without, uh, for those not too familiar and without going into too much depth, is that when you start seeing particularly this, um, you've got Aussie one at $1.9 billion at $68.50, what tends to happen when we start seeing a billion, $1.5 billion plus in size, is that it tends to act as just a bit of a magnet for price to draw it into that, into the close. or the cut, I should say. And so what that means then, it's an additional variable to be aware of if you're trading those particular currency pairs, in that actually what you might see is, is prices either remain, if close to the current, um, level of where the strike price is, that very quiet trade, uh, unless something unexpected develops from a fundamental perspective to really shift things. Okay, calendar-wise What else have we got? Uh, they're probably— the main interesting thing for this morning is public sector net borrowing from the UK. It's not really going to be a market mover, to be quite frank. But the one thing that could be quite interesting is the ECB minutes. They're coming out at 12:30. Christine Lagarde actually speaks tomorrow, I was reading earlier in the week. And even though she has spoken in her role as president She's never spoken so far about monetary policy. Some have been speculating that that's to do with she's been trying to have a lot of internal talks to try to miss or manage the division that's been apparent since the recommencement of QE at the beginning of the month. But it's going to be quite interesting to see when she does speak tomorrow, what does she have to say? It's her first kind of meaningful speech, will be quite key. But the minutes need to be coming out 12:30. You've then got this afternoon, 1:30, Philly Fed from the US with the weekly jobless claims. Existing home sales coming out 3 PM. And then speakers-wise, there's a couple to be aware of. Mersch de Guindos from the ECB. You've also then got Mester, who is a voter in 2020. Neel Kashkari from the Fed is also a voter next year. So I'd keep an eye out for Mester and Kashkari. What's quite interesting there, they're speaking at 1:30 and 10 past 3 London time, is they are both the absolute opposite ends of the policy spectrum. Mester is one of the outlying hawks, and Kashkari is probably one of the most dovish members of the FOMC. So it could be quite interesting. And then finally, for fixed income traders, if you're looking at the Bund particularly, you've got a lot of supply coming out this morning from both the Spanish and the French treasuries. Do be aware of that if there's any short setting going into supply later on this morning. All right, that's it for me. Hand you over to Sam. I wish you guys a good day. Thanks very much.

Hi guys, good morning. Uh, might as well give a round of applause, uh, to the bears for finally getting 2 days to the downside in, in the S&P. First time since the 1st and 2nd of October. That trend line from the, the top of the daily still holding, uh, obviously near those all-time highs now, um, or is on the all-time high, should we say. So we're still having that on, uh, just to adjust that trend line just to get it a bit more accurate. So I'd say if we do get at all any push higher, uh, just to be aware of that trend line starting back on the, uh, the 1st of May, hitting then the middle part of July before obviously hitting that at the beginning part of the week. Looking medium, uh, term, dropping it down. Trend lines had broken yesterday as well here on the hour, so that's relatively significant. There's actually a decent moving average, the 200-hour one. Oh, I don't want the moving average cross. Um, well, you can see here, yeah, the, uh, the moving averages Uh, well, I'll take up the moving average cross, but yeah, the 200-hour moving average is worth having on the S&P just in the way it's, uh, previously acted as support or resistance over the last few weeks. Having a look more intraday, obviously taking into account the, uh, the gap, the closing, uh, sort of low that we had on, uh, on last night. We've had a couple of times trying to get above that, obviously a very key point, 3107. And a quarter, and then the double bottom at the low as well. So they're your, your sort of key levels, uh, close to where we're trading. And of course, just above, you have the potential retest of that trend line, which acted pretty well, uh, on the break, and then resist, uh, resistance on the, on the way back before we would get to touch some of the, the top end of those ranges, um, from yesterday. So a couple of key points, I guess, as well. You're probably worth having on 3100 still even though it did become quite choppy yesterday. We have just recently had a bit of support there, uh, as well. Having a look over to, to gold, which at the similar time the S&P was, was coming lower, we pushed higher. We then gapped to the upside. However, we have reclaimed that relatively quickly during Asian session trade. We're a fair bit off now, you would say, from those lows that we had not long ago, uh, on the 12th. So worth now just starting to get on a couple of these trend lines just in case we are to have a bit of dollar strength come in or some really positive trade comments, and gold would have to correct itself from that. Uh, S1, that area, 1465, 1466, important. You've got the low from yesterday, the low from, uh, Tuesday as well that I'll be focusing on and looking at that as well. From the recent highs from yesterday and day as well. You can see we're just getting squeezed in, so again, worth having that on. Before we get that trend line, we'd be looking to retest the area of support around 1473.6 on the futures as well. We've had a couple of tests at trying to push lower on 1469.67. You can see a decent price action point from obviously today, yesterday, a couple of times on that breakthrough, and as well just moving this above here, the, the camera, you can see really, really important point around 1469.8. So today, gold, obviously looking at those trend lines, looking at the area of support, S1 as a horizontal point looks pretty important, uh, as well. Euro, yesterday we did push higher to come back lower. We're getting squeezed from both directions. We're in a bit of a, uh, a range And as with the euro all year, just worth always having on a bit of a trend from those lows just to see if we are going to hold it or not. This morning we have just made the third test of the trend line from the high of the 18th to yesterday, today as well. So price getting squeezed in from both ways. An obvious trade would be to be looking for the break higher to test any of those previous highs from previous days, or lower to try target yesterday's low and that S1 point, which has been pretty key as well. The pound, similar in that way to gold and euro, that we're off those lows. Uh, yesterday we made, well, 3 tests of this trend line, and certainly one to have on now. We also at one point broke, or was starting to look like we were going to have this trend forming from the top. Have we have broken through, although I wouldn't say it's the best trend in the world. So I'd almost remove that. Finding resistance at the R1 key level just above 2953, bit of support from the 18th, resistance then on the 19th. So I'll be having a look at that and keeping a watch. A couple horizontal points just above there as well. But if we are to see any pound weakness come through for whatever reason— dollar strength or the polls perhaps starting to not look like a conservative majority— a break of that trend could be, uh, and not a too bad trade to, to have on. Oil yesterday, uh, decent push from the, the DOE. I was actually just before I went to football yesterday because daytime— well, not daytime, team evening TV is just so poor at the moment. I ended up putting on Bloomberg News, which is pretty embarrassing to say, but they were really banging the drum about oil, uh, pushing lower here. And obviously there's a little flag, trend channel, whichever way you want to look at it, about it that broke on the 19th a couple of days ago. We have come back to retest that late last night following the positive DOE spin. And is that now a really good opportunity to have got short back down to really target, you would say, around $54 on a medium-term position? It'd be interesting to see what people think about that. Is oil now, um, the a good place to have gone short, obviously, on the break that we saw on Tuesday. Absolutely, people would have been wanting a retest of that, depending of course how accurate you draw, uh, that lower part of that trend. Uh, we, we just struggled every single time to get above $58, and now we've broken to the downside. Is this a good opportunity to sell? Fundamentals of course will come into play. You've got the, the trade war talks, you've got the OPEC meeting in a few weeks as well to keep an eye on. Just a bit below where we're trading, I'd be keeping an eye on, uh, around 56.64, some good bottoms from previous days, a good area of support. So to have marked up on there, quick look over at the DAX, relatively quiet, uh, as we come into about half hour after the open, not too much going on. Of course, at the beginning of the week we talked about uh, that DAX mini range that we had been in. Uh, we broke on the beginning of the week after actually trying to push higher, almost a little fake out there. We have come back to retest it a couple of times. I mean, it would have been horrible to really have traded that, especially if you wanted the long there or there as well. But now we've closed below there on the day. How significant is this going to be? I would favor place to look short unless we get in back to that range. I think an obvious target, um, if anyone is still short, you'd be looking at those highs from the 28th and the 4th before we broke through as well. Let me know if there is any questions. Uh, if not, I hope you all have a great trading day, and I'll catch you in the chat.