Beans Don’t Grow On Olive Branches | Daily Market Commentary with Jeffrey Halley
Global financial markets have been buffeted by conflicting headlines over the last few hours, ahead of high-level bilateral talks in Washington DC today between the US and China on trade.
The Financial Times reported that China had offered to buy another 10 million tonnes of soybeans from the US, in an apparent olive branch to unlocks stalled talks and head of increased tariffs by the US on October 15th. That optimism had powered Wall Street to a higher close after a difficult few days for US equities.
Not to be outdone though, the South China Morning Post and Reuters have published stories after the New York close that suggest the deputy-level talks this week had yielded no progress. Chinese officials also had low expectations of any breakthrough, with the two sides intractably as far apart as ever even as senior levels talks commence today.
The one per cent gains overnight on Wall Street were quickly consigned to history this morning as traders ran for the door. Asia stock markets and S&P futures now start the day solidly in the red with the offshore Yuan (CNH) also moving lower.
What are the takeaways from the last few hours trade talk whipsaw? For a start, it reinforces that the outcome of the bilateral talks this week and the remainder of 2019, remains the centrepiece for the economic outcome of the global economy. No deals imply that the global slowdown that was occurring anyway could become deeper for longer into 2020, with no corner of the world escaping its reach.
Secondly, any data releases this week are rendered relatively meaningless when there is clearly only one show in town, the bilateral talks. On that note, given the whipsaw price action of the last few hours, discretion is definitely the better part of valour from a trading perspective. Unless being buffeted in a storm of conflicting headlines is an adventure sport you enjoy, moving to the sidelines and out of the noise for the next two days is probably the smart move.
US equities ended the day higher with the S&P 500 rising 0.91%, the Nasdaq increasing 1.02% and the Dow Jones climbing 0.70% on trade optimism. All of that came to a sudden and abrupt halt this morning following adverse trade talk reports in the media, with the S&P 500 futures falling 0.40%.
Asia is following suit with the Nikkei lower by 0.50% before recovering to be flat for the session so far. The South Korean Kospi is down 0.80%, the Australian ASX is 0.40% lower, and Shanghai and Hong Kong are both lower by 0.40%, regaining some of their early losses.
The whack-a-mole nature of the price action today suggests a stressful day ahead for traders as markets jump on the latest rumours and headlines emerging from the bilateral talks.
USD/CNH leapt to 7.1690 this morning before falling to 7.1160 as traders were on the end of a trade talk whipsaw on conflicting media reports coming out of the talks. USD/CNH has support at 7.1000 and resistance at 7.1700, but I wouldn’t bet against both sides of that range being tested multiple times intra-day as USD/CNH intra-day volatility increases on short-term trade headlines.
Trade sensitive antipodeans AUD and NZD have both recovered some of their overnight losses back this morning. However, at 0.6700 and 0.6300 respectively, both remain uncomfortably near multi-year lows at 0.6650 and 0.6200 as financial markets price in more easing from both countries central banks.
USDJPY has bounced around in a 107.00/108.00 range over the last 24 hours driven by bilateral talks rumours and headlines. A breakdown in talks is likely to see JPY strengthen on safe-haven flows with a move below 106.50 heralding a retest of 105.00.
Markets completely ignored an above expectation rise in official US Crude Inventories overnight, preferring to concentrate on positive trade headlines and the launch of Turkey’s Syrian offensive. Unrest in Ecuador and Iraq continued to provide some support to oil as well with Brent Crude unchanged at $58.35 a barrel and WTI unchanged at $52.65 a barrel.
The adverse trade reports this morning have swung sentiment to the negative and both contracts have fallen slightly in Asian trading. Brent crude is 0.25% lower at $58.20 a barrel, and WTI is lower by 0.20% at $52.35 a barrel.
Sentiment will remain negative until the next trade headline pops across trader’s news tickers. The randomness of the price action caused by the trade headlines is sure to fray nerves, but I note that oil appears to react more negatively to negative headlines than vice-versa. It implies that the market remains long and an unsatisfactory outcome to the senior level talks into the week’s end, could have an outsized negative effect on oil prices.
Gold bounced between $1500.00 and $1510.00 overnight on trade gossip but finished the day unchanged at $1505.60 an ounce.
Negative trade headlines today has seen gold rise 0.20% to $1508.25 with gold poised to benefit from any uncertainty or negative trade headlines today. In fact, gold’s short-term direction will be entirely driven by trade headlines into the weekend emphasising that its fate is not it’s own at the moment.
Gold has support at $1500.00 and $1485.00 with resistance at $1520.00 and $ 1535.00 an ounce. Bilateral talk driven volatility could easily gold testing both ends of the broader range over the next 48 hours.