Everyone’s A Winner, Donald,Thats The Truth | Daily Market Commentary with Jeffrey Halley
It has taken precisely one working day of the new week for optimism to fade about the US-China trade deal lite/mini/part one. The rhetoric high, but detail light, trade announcement in Washington DC on Friday, has been tempered by China being both a lot more circumspect and requesting additional talks before signing an agreement.
I have little doubt that both sides will get something over the line before a scheduled meeting of President’s Xi and Trump next month. But the pseudo-deal itself represents nothing more than a holding action. China dodges more tariff hikes and gets more pork and soya beans that it needed anyways; the Americans get less angry farmers in crucial voting states. Everyone’s a winner, but everything stays the same, as no progress on the hard stuff has occurred in reality.
That is not to say both sides aren’t motivated; they most certainly are. Yesterdays China trade balance saw exports last month fall 3.2% and imports plunge a terrifying 8.5%. The lead-up to the golden week holiday probably played its part, but the import figure, in particular, will have sent shudders across Asia-Pacific whose own exports are so reliant on China imports. The trade war is making itself felt in China despite its brave face.
The United States’ moment of truth probably begins this week as well with the Q4 earnings season kicking off. Banking heavyweights, JP Morgan, Goldman Sachs, Wells Fargo and Citigroup all report today. A flattened yield, as bond yields sink over global growth worries, may well make its presence felt on the P&L column of today’s results. Positive yield curves make bank CFO’s happy in their own dour way, flat or inverted ones do not. Lowered growth outlooks could be a well-used phraseology this reporting season as the effects of the trade war wash up on American shores at last.
The whipsaw price action of last week continued overnight on the trade deal lite concerns. Wall Street gave up part of Friday’s gains; oil fell, the dollar rallied, as did gold. Last week’s observation that watching from the sidelines could be the smartest investment strategy of the year, probably still holds water this week. Chasing headline lemmings putting on long-term FOMO trades, that are unwound just as quickly the next day, is soul-destroying stuff.
As headlines continue to dominate, it wasn’t all bad news. Both the UK and European negotiators seem to be signalling there is a genuine chance of a Brexit breakthrough. That contrasted with the Euro-glumness over the weekend that saw the Sterling sink nearly 200 points in total, to 1.2500 from its Friday session high of 1.2700.
Unlike the US, leaks are not called leaks in Europe; they’re called “briefings.” The Brexit negotiations are locked down to stop the flow of “briefings” from both sides. I take this as a positive outcome, and one senses something big could be on the event horizon. Any sort of deal, briefed or official, will likely have a predictable effect on Sterling. In that case, the only way is up, and maybe up and up and up. A Brexit deal could see GBP with a 1.40 handle on it tout suite.
China data retakes centre stage this morning, with the release of China Inflation and PPI at 0930 SGT. September Inflation YoY is expected to rise by 2.9%, and September PPI YoY is expected to fall by 1.2%. Given that Wall Street’s trade-induced fall overnight is likely to put Asia on the back foot today initially, the data will be monitored for any follow-through from yesterday’s disappointment. The PPI undershooting, in particular, could see the clouds darken over Mainland markets this morning.
Japan Industrial Production is released at 1230 SGT to provide some pre-Europe entertainment ahead of the German ZEW survey at 1700 SGT.
Wall Street continues to chase its tail, unable to maintain an investment horizon of more than 24 hours as it tracks the latest trade gossip. In this case, the request that China had requested more talks on a trade deal that never was, according to the Chinese, saw growth optimism wane, and with it stock prices. The S&P fell 0.14%, the Nasdaq 0.10% and the Dow Jones 0.11%.
Earnings season may provide a welcome relief to the inconclusive trade talks although, depending on the results, not necessarily a positive one. Trading was thinned yesterday in the US as the bond market was closed for Columbus Day.
Asian stock markets will look nervously towards China’s PPI reading this morning and will likely ease initially on the same trade concerns that took the edge of Wall Street overnight.
That same wilting trade sentiment saw a short-term rotation into the US dollar overnight. The dollar rose broadly, except against fellow haven, the Japanese Yen, with the dollar index climbing 0.21% to 98.51.
Sterling was the star of the show, falling to near 1.2500 initially from an open of 1.2630, as weekend Brexit headlines shook sentiment. News that a breakthrough could be imminent unwound most of the down move leaving it only 0.31% lower overnight at 1.2605. If you are looking for FX volatility, then the pound is the right place to be. To trade it though, you will need eyes glued to a very efficient news ticker though.
Asian currencies will probably start slightly weaker following the dollar rally overnight. Again, it is built on short-term headline sentiment as opposed to actual data, and the fall of today could easily be the rally of tomorrow.
China’s PBOC Yuan fix will attract more than the usual amount of interest this morning. It is expected to be around 7.0675, with the street watching to see if China throws the Americans a few bones and fixes the Yuan higher. I very much doubt the Chinese would be so unsubtle, as to simply stroke egos in the White House….
Oils global recovery fairy tale ended as abruptly as it had started overnight. Brent crude fell 2.50% to $59.70 a barrels and WTI fell 2.60% to $53.59 a barrel.
It took a missile attack to push oil higher by two per cent on Friday, but only waning sentiment on the details of the trade deal that wasn’t to force both contracts 2.5 per cent lower. It should provide traders with an insight into what the primary driver of oil prices is at the moment. It is undoubtedly global growth and by default, oil consumption, and not geopolitics.
Stepping away from the intra-day noise, therefore, and there is so much of it it is deafening, the critical longer-term supports are $56.00 a barrel for Brent crude and $50.00 a barrel for WTI.
Gold ranged between $1282.00 and $1297.00 an ounce overnight on headline-driven trading before closing 0.30% higher at $1493.50 an ounce. We should though be under no illusion that gold’s range or the close was anything to do with gold itself. Instead, it is entirely due to the intra-day nuances of which trade-driven headline is scrolling across screens at a given moment.
This frustrating turn of events for precious metals aficionados is disappointing I am sure, but sadly the reality, for now. Stepping back from the intra-day noise is probably the better part of discretion over valour. Or an acceptance that we are all trade negotiators in waiting for now.
Longer-term support and resistance are at $1460.00 and $1520.00, and I will find it hard to get excited until one or the other breaks.