Would Trump Ever Cut Ties With China?

Okay, very good morning. It's Anthony Cheung here, Amplified Trading. It is Friday the 15th of May. Uh, first of all, don't forget to like and subscribe to the channel. Uh, two new videos we're going to drop this weekend. On Saturday, my colleague Eddie, you've probably seen on the channel before, he's going to be doing an exclusive video about Negative interest rates explained, essentially everything you need to know. It's obviously been a real talking point this week, but how does it work? What are the repercussions? Uh, how does it then affect different asset classes? Um, how can you expect the communication changes to come into play from the likes of what Andrew Bailey was saying from the Bank of England yesterday? He's going to cover all of that. So that's going to come out on Saturday morning, and then Sam North is going to drop a weekly going forward now Sunday piece about technical levels and trade setups for the week ahead. So make sure you subscribe to the channel to catch those. Uh, if you're interested to find out more about Amplified Trading, the link is below, it's in the red bar on this video. So do check that out when you get time. But let's just take a look at the charts this morning, and it's a relatively quiet morning. Uh, US index futures relatively flat at this point after what was a generally firmer close on, on Wall Street and a positive, albeit moderately, Asia-Pacific session. Tokyo, Hong Kong, Seoul all higher, Shanghai a little bit of fluctuation. DAX this morning then in Europe is trading at the moment up about 94, just following that lead. But the US futures, as I said, pretty flat in regards to the Dow and the S&P for the moment. Elsewhere in the FX markets, The major pairs a little higher in terms of EURUSD and CAD, also a touch of dollar weakness. T-notes pretty flat, gold still relatively elevated, and oil's been a bit of a standout. And just on that point, I just want to have a quick look at some of the charts, um, the equities first. I'll tie in the look at the oil chart when I talk about the fundamentals, and I'll wrap in some technicals to be aware of as well. But this of course is that chart that we had marked up from yesterday. So if I just remove my camera feed for a moment, you can get the full kind of narrative of the last couple of weeks. And yeah, yesterday we saw, as we were talking about the briefing, quite a lot of negative developments yesterday. And markets did eventually come off through the European session at least, and we dropped through some key levels. Remember, these were the rectangles at that point in time in the morning we were right in the middle of that main kind of trading area or band of resistance and support. We broke through there, went through that other target which was that low on the 4th, and then got close proximity to those lows that were seen down on the 24th. Before then, we had, you know, an almighty rally, uh, really as Europe left the market, the US came in and really just, you know, fired things back up. Um, a couple of different things here. It was interesting when jobless claims came out, because post-jobless claims we actually fell in US equities. And my reasoning there was at the time, if you think about it, if the jobless claims number wasn't too far away from expectations, and what that means then is it doesn't really force the hand of the Fed to move sooner toward negative rates. And equity markets generally, particularly US stocks, typically like stimulus. And so we had that previous day sell-off on the Powell speech where he kind of pushed back on the notion of deploying that that as a policy tool anytime soon. And then the jobless claims came out, and because they weren't horrific enough, then it doesn't bring forward the expectations of that negative rate being a real tangible prospect anytime soon. And so equities actually sold off. The reason behind the rally, I don't have one if I'm honest with you. I mean, it has been quite interesting though. If you look at the, the price patterns here, you remember on Tuesday night we had that big sell-off which really wasn't sparked by one singular headline. There was a couple of technical key areas of support that gave way. There's a little bit of apprehension about the trade war, the secondary wave virus. Sure, there's a few things in play, but the severity of that— remember, we came in the next day and the markets actually bounced, and then we had the big shift lower. We've had the shift lower, we've bounced. Yes, albeit the, the bounce this time has been way more aggressive. But yeah, it's gonna be interesting to see, um, how we finish today for sure, because it has been a fairly bumpy week, but overall a fairly negative one in that sense. Uh, gold then has continued to just remain supported in that extent. Um, it's just looking here at gold, there's a few key areas now where we had a big bump up yesterday. So net-net, you know, gold playing its own tune slightly from that equity move. Uh, so equity's coming off I guess it's a natural relationship in the sense that then you get a bit of a bump in, in a flight to quality and gold going bid. A lot of the, the fund managers I've read in the FT this morning talking about, look, obviously there's a threat of deflation in the, in the short term, um, of course. Let me just put my feed on. Uh, there's a flood of deflation in the short term, of course, given that the massive drop-off in, in demand just given the situation of the lockdown. But they're looking at the longer term And they're thinking, well, there could be some real inflationary threats down the line, just given the mammoth scope of the stimulus provided on the fiscal and monetary side. And perhaps, you know, gold offering that, you know, that kind of hedge against future inflation helping things, as well as just generally then some, some negative developments we've had this week has been particularly kind of challenging for the equity market after rallying post-payrolls this time last week when we're at those highs. And, and so gold still offering a degree of, I guess, exposure for many different types of investors. And technically there's been some nice areas to get in. I mean, that, that move was fairly rapid when we went higher yesterday, but if you look, it came right down to quite a nice strategic point of entry. I know a couple of the guys were looking at this yesterday where the price came back down to around that 35.5 level, and you can see that was the high on the 8th and also on that one of the points of that trendline test going back on the 30th. A nice entry point for the long, and then just taking the position up, taking some off then on the move back up to the, the respective R2 on the day, and then the final part of the contract off, um, you know, holding that position and then taking it off of that initial spike high that we had yesterday post the jobless claims. So yeah, nice, nice setup there technically. We've had a failed push above that at the moment. It's attempted to if we did move higher, then really it's quite clean air for, for an extension of the move on the, on this trend that we've seen materializing over the last 2 days, really. And you've got the R1 just above, but, but really technically there's nothing really too much then until we start getting more further up to around 1759.5, up like to that kind of area there. But in order to see that happen in the intraday session, I think you've got to be looking for a bit more of an equity kind of meltdown going into the, the weekend. Whether that will happen or not is yet to be seen, but I would be watching those correlations. Otherwise you might get a bit of a push down, and perhaps then we kind of— we're in this area here now of consolidation before then we make a decision. So we either see a bit of a break higher and equity soften, or we play this consolidation, and then perhaps we start to reverse the move if we break the range. And if that were the case, well, then the next levels there, I'd be looking at these highs. So coming back down to around 28.5 down here. So that's the gold kind of story and the equity story. I'm going to look at oil in a bit more detail in a moment, but let's just jump onto some headlines. I'm going to start with this. This was the industrial production in China overnight, shows some signs of improvement in April, signaled that generally you know, the government stimulus that they've been doing fairly heavy-handed is helping out, helping improve things here domestically. Retail sales, though, were disappointing. So obviously industrial production is one thing that they can immediately stoke or renew demand because if the government comes in and says, right, we're going to spend this money, we're going to build this, it's going to require this action in terms of industrial production, you can't quickly switch on and off the consumer in terms of their confidence so quickly. And as they have this cautious reopening, obviously we saw in Wuhan this week, I think since April they've retested a huge proportion of that 11 million population. But we had that secondary outbreak this week, and hence there lies a bit of an issue with the consumer really just getting back and spending again, A, being confident, and B, having the physical ability to better just go out into shops, restaurants, bars, and so on and act in a more normal behavior that we would have seen pre the pandemic. So yeah, a bit of a disconnect there, but certainly a few people looking at this this morning, just given the strength of the bounce— if you look at it, we've pretty much in that one sharp V eliminated all of that negativity that was seen in the prior readings, um, and it's getting a bit of attention. Comes in the context, of course, of Trump yesterday. One of the headlines was he said he doesn't want to talk to Xi as China tensions rise. The president muses about severing ties with China. Trump says US looking at Chinese companies on exchanges. I mean, severing ties with China, I mean, when he's talking about doesn't want to deal with them at all, I think that is absolute nonsense. Um, you know, the relationship that these countries had is so integral to one another and it's so embedded on so many different levels. You know, Trump is just saying what Trump needs to to say at this point in time. And that then leads me on to an important point that I want to make, which is this: when you think about Trump and the next couple of months, you have to think about it in terms of what is his political agenda as much as his management of the current and future economic situation. Now, as we know, there's a US election happening a bit later on this year, and what's important to understand for me is the timing around when you can expect the rhetoric from Trump on China to intensify. And actually, I think that you can roadmap that out pretty accurately. And that's a good thing to know if you're trading short, medium term, because it puts you in a position of knowing where there is increased risk, where Trump really starts to push the envelope a little bit and start saying these quite outlandish things, but could be received quite negatively in the markets if they take it seriously. So here what I'm looking at is a map of United States, but I've got colored here a couple of different things. So the red, obviously solid Republican, the blue solid Democrats, so California, State of New York, and so on. I don't care about those, they are going to remain in the hands of those political parties more likely or not. The ones I am more interested in, or the most interested in, is the yellow ones, and the yellow ones are the toss-ups. So although the faded blue and yellow ones, or the faded blue and pink ones, are leaning one way or the other, fine, there is a potential that they could flip political allegiances. But it's the toss-up ones that I'm focused on. And so for me, Trump then, his administrative team, of course will be focusing— the battle goes on in these several states. You know, there's no need to spend campaign energy and and financial power on the likes of, um, California if you're Biden, because he's got it sewn up already. What is he going to do? Well, how about he focuses on an area like Florida, for example, where a lot of people in the Northeast might go for retirement because of the warmer weather that helps their general health when, as they get older, for example. So the two candidates will be battling it out trying to get attention and voters sway their attention towards their party in those areas. Now, if you know then when Trump is going to be landing, let's say in Wisconsin or Michigan or Pennsylvania, I think you get a pretty good feel for when then you can get the timing of when he's going to ramp up the anti-Chinese kind of slogans in that, in that sense. And guess what? Yesterday he was in Pennsylvania. He arrived in Allentown, he was doing the rounds in a distribution center, he was delivering remarks, you know, and so on and so forth. And what that means to me then is that there's an increased chance that he's going to start saying these types of things. So instead of it being just so reactive and just waiting for news to come out, Trump says this, Trump says that, I do think that you can pretty much plot out the what he's likely to say and when by knowing his predefined schedules. So obviously the scheduling is very important, you know, I'll share this with all of our guys, his day-to-day schedules. I think it's just important anyway to know generally who he's meeting, what his movements, what are the timings, when could he be tweeting, and so on. But again, if you look at this graphic, this is again, look at United States on a state level Um, so we can see all the different areas, but here what I'm looking at is not just the political disposition, but now I'm looking at the severity of the rolling weekly unemployment estimates by county. And as you can see here, Pennsylvania, Michigan, for example, are two of the worst-hit areas due to the COVID-19 lockdown. So for me then, Pennsylvania, there's a lot of people losing jobs. The local economy is really suffering on the back of that. And so that is an area where if I was Trump and rolling into town, I would be absolutely banging the drum about how this is a Chinese virus, it's the Chinese fault, um, you know, I'm going to do every stimulus package I can affords in order to assist this area, so on and so forth. So again, just wanted to explain the way to think about this type of thing in order that you can be a little bit more savvy beyond just that of just blindly looking at an economic calendar or schedule for the week. You should also be thinking about this because it's probably going to become more and more increasingly important because the verbal threats are going to increase and intensify most likely over the next few months. You know, given how bad the economic situation is, is a little bit worrying because it means Trump really does need to go pretty far now in order to convince the general public in these areas, um, that it really isn't his fault, it's China's fault, it's Powell's fault, it's the state governor's fault, or whoever it lies on the blame. The other thing then was this, you know, don't get confused with what Trump says necessarily means will be reality. I mean, if I got paid a pound for every time Trump said something to what he actually goes and follows through, I mean, he says a lot and he follows through on very little, hence his kind of managing of situations. And this is that kind of infamous trade war cycle on here. Um, not probably— this dot needs shifting over a little bit to down here because this week we've had a little bit of a market sell-off as the administration's got tough. But lo and behold, and I'm sure this will materialize in the coming days, weeks, the administration will hint at a resolution, markets will feel quite comfortable again, and then there'll be a lack of progress, and then around we go again and again. I don't think this is going to change in terms of how then, you know, as long as, as long as equities bounce like they did last night, I think Trump can continue to push harder and harder on China. It's only when we get a continuous sell-off, and a little bit of the problem that we had in the last couple of days is that Powell pushing back against negative rates means then If he pushed back some negative rates but the trade war escalation goes up, well, the balance is that markets need to go down. If negative rates become more of a possibility and he pushes on China, well, then it kind of equalizes each other out. But again, we go back to that whole idea of, you know, how far does Trump really want to push things? Because if he really did push it, he could force Powell's hand because if the markets continue to fall— and we've got nowhere near that point at this, uh, this present point in time— but then Powell doesn't have any, any other choice. You know, his job is to manage the economy and also to manage financial markets in a sense that, you know, stabilization there generally then creates confidence about the economic future. So yeah, a couple things there to think about. that I thought I'd go over. Moving on though, let's have a look at oil. And oil set for a third weekly gain on supply cuts and demand recovery. And let me just switch over to the oil chart. And actually, I'm just going to go over to here. So looking at a 240 candlestick, and actually I think we have broken through quite an interesting area yesterday, and that is you know, I've kind of put two rectangles here of the price movement that had really been, uh, defining the range of May so far. On the upside was around 2770. They've had a couple of tests of that area back on the 5th and the 7th early in the month. And then the low end of the range, more like 2450 type area. Now yesterday evening, there's some positive catalysts which I'm going to go through that created the break. But now we've got the break, you can see the market using that previous significant level as a bit of a an area of support now for the next push higher. On the push higher, the area then that's just been found as an area of resistance initially before the move that we've had this morning was around these types of areas here. And now we pushed up, just getting rejected short of that area here and here, the low on the 16th of April and on the 20th that acted as then quite a significant level for what was a break at the time, came back up to that level before the push back down. So here's quite key, just before we get up to the R1 today, which would coincide with around the $29 handle, uh, any further follow-through on that, then I'd be looking up at around this type of area at $29.41. But why the positivity in oil? Well, a couple of different things and developments really that were happening yesterday that caused that late late session kind of rally. Saudi Aramco, they're slashing their sales to key buyers, um, the— and that's helping on the, the kind of demand side. The IEA, of course, said the market is showing signs of improvement, and they're boosting their 2020 demand forecast by around 700,000 barrels per day. They also said the decline in oil demand in the first half of this year is not as bad as they initially feared. Um, so that, that was, uh, a little bit of a bid on the back of that yesterday morning. OPEC+ has cut their daily exports by almost 6 million barrels in the first 14 days of this month, according to PetroLogistics. Global oil production now is on track for a pretty historical decline, and in fact, this month will be the lowest level of production globally in 9 years. So really coming through with the promise that they made in that historical agreement on the 9th of April when OPEC+ and those G20 energy-producing nations all came through with that coordinated effort to counteract what was then the big breakdown in oil prices that we saw. And then we've had things like China overnight, the industrial production figure output increasing in April for the first time since the outbreak, has really gone some way as then thinking, well, if China gets back on its feet and domestic situation starts to settle, then that has implications as well to help bring back that imbalance that we had between supply and demand. So supply basically has come down rapidly, uh, and on that note, we've also had, of course, uh, this situation, you know, not just are they forcefully cutting, but financially oil firms in America are also being forced to close because it's not economically viable to run those operations anymore. And US oil and gas rig count fell another 29, um, to 369. That's the 9th straight week of double-digit declines in operational rigs in America. And that means since mid-March, when all of this really started kicking off on the pandemic on a global scale, the rig count has dropped around 55%. So big drop in supply, and demand kind of gradually started to creep up again as we go through these phases of loosening the lockdown. And that's giving a bit of a bullish scenario for the moment for crude oil. Okay, final points, just to give you an update because we were talking about this yesterday. You know, the focus has been Wuhan, South Korea, and Germany. Well, on the German side, after what was a push back up to around nearly 1,000 new cases, the highest in 5 days yesterday, we've had quite a record drop now. So it continues to be quite up and down in these these cases at the moment. I think the R rate, the reproduction rate of the virus in terms of its one person spread to another multiple of other people, I think it's dropped to around 0.7 or 0.8 at the moment in Germany. But they recorded a steep drop in the number of new coronavirus cases. The daily death toll fell to the lowest in 4 days and the infection rate declined. That was yesterday. On the Brexit front, I actually think that this has zero bearing in terms of the price for today, and I actually think this is absolutely unsurprising. I still remain firmly of the belief that they're not going to reach any type of deal at this point, with the final summit coming up in June. Is those last round of key trade talks. The current round finishes today. Just to give you a flavor with where we're at at the moment. The UK reportedly is refusing to compromise in key areas, most notably the conditions that the EU wants the country to accept in return for a trade deal, but also on fisheries, the role of the bloc's courts. The EU and the UK fundamentally have different interpretations of the way the withdrawal agreement's protocol on Northern Ireland should be implemented. It almost sounds like I'm a bit of a broken record, Sounds like we've moved forward zero in terms of Brexit. Now, although the UK government has been resolute and Boris Johnson continues to say these quite bold statements, you have to understand that this is purely political management. You know, he campaigned at the end of last year on delivering Brexit. He cannot now backtrack on that. But what he will do is blame, of course, the coronavirus has caused them an inability to deliver these talks. And so personally, I think he will have no problem at all with now requesting an extension in June to continue these talks then, because remember, although the current phase of transition ends at the end of this year, if he needs longer than that, then he needs to make a decision by that June summit in order to then get the extra 1 or 2 additional years for negotiation. And just given what's happening economically with the, uh, the government's time and energy taken up with the pandemic response, it would be absolutely expected that they're going to have to, um, reluctantly extend these talks of transition. But politically, I don't think that will damage Johnson at all because he'll be able to just pin it onto the— onto COVID-19. So yeah, I don't think this is a big deal for now, but just thought I'd get you up to speed because we are coming towards the end of this initial, what was supposed to have been the delivery of the, of Brexit. Looking at the calendar for today, a few things to look out for. The German flash GDP numbers, they're coming out later on this morning. This is for Q1, but remember, this is Q1 data. It's going to be negative, but, you know, kind of like what we saw in the UK earlier this week. Yes, deep contraction, but it's Q2 which is going to be way more impacted by this current situation. So yeah, it gets a little bit of a look in and some attention, but I think the markets are fairly comfortable with the notion that these, these contractions have begun in, in Q1, given the late March reaction to, to the pandemic increasing in mainland Europe. And then moving on to the late morning, you've got the flash estimate for eurozone GDP as well as the flash employment readings. So a couple things to look out for. Then in the US you've got retail sales today, and remember last month in, in March we had a, a pretty record-breaking figure. But according to Reuters survey economists, retail sales in the US today will likely have collapsed by around 12% in the last month. That would be the second biggest decline since the government started tracking the series in 1992. Retail sales fell 8.7%, as you can see there, last month. So things have basically got worse, as you would expect. April was kind of the trough, if you like, of the most impacted. There is a range here of -20% to -4%. And again, a lot of people will be looking at this as to one of the key metrics or components for their model in order to think about then how deeper contraction would we have printed in the second quarter, given, you know, the, the relevance of consumers and consumption as a driver of US economic growth. This type of reading will give us a pretty good barometer to just how bad that contraction in Q2 will be. Then you've got industrial production coming out, cap utilization after that. You've got University of Michigan— this is the preliminary reading for May— so be interested to see just where sentiment lies in that respect. And then you've got the Baker Hughes rig count coming out later on that evening. For equity index traders, you do have the options expiries across the various different index contracts this morning, so just be aware of that as well. All right, that is it. So as I said, don't forget to subscribe to the channel. Two new videos coming out this weekend, and then I'll see you back on Monday. Any questions, of course, just leave a comment. I'll be responding throughout the day. Otherwise, have a good session ahead and have a great weekend. Thanks very much, guys.