A barrage of tweets from President Trump along with comments from a White House dinner last night provided a brush of optimism that trade talks will have a happy ending for Americans. This morning, he reiterated his frustration with the Fed’s inability to deliver further easing, this time comparing them to the PBOC, who has been very active. Trump reiterated he will meet with President Xi at the G-20 summit, which is at the end of June, possibly indicating we will be at a standstill for talks.
The US announced they will prepare $300 billion of new tariffs that will basically cover all Chinese imports a move that would be catastrophic for all. Demand destruction and falling confidence would likely bring the US to a recession if we see a total collapse in talks. The tails risk is growing, but still not the expected outcome.
US stocks are poised to open higher following Monday’s massacre, with S&P 500 futures rallying 0.6% to 2,825 and the Nasdaq up 0.8% to 7,376. The US dollar is modestly higher against its major trading partners this morning.
- ZEW – German investor confidence remains depressed
- Brexit – May’s clock is running out
- Oil – Middle East tensions continue; drone attacks on pumping stations
- Bitcoin – Where are the short-sellers?
- Gold – Rally takes a pause as trade battle simmers
ZEW
The ZEW indicator of sentiment declined to -2.1 points in May, a missing forecasts by 7.1 points, highlighting a rising doubts on the economy over a challenging trade war environment. Following a surprise rise in exports for March, analysts were optimistic the ZEW survey would deliver a positive reading.
Germany reports first quarter GDP on Wednesday and while a rebound to an expansion of 0.4% is expected, many are attributing it to temporary factors such as weather.
Brexit
PM May is facing mounting pressure to abandon cross-party talks with Labour as 13 former ministers warn her that she will split the party. Her spokesman noted its imperative for the Brexit bill to get passed by summer recess. Talks appear to be ongoing and May is holding off giving a specific departure date for herself.
Oil
Middle East tensions are driving up crude prices again after two Saudi Aramco oil pumping stations for the East-West pipeline had been hit by two Iran-backed drones. Operations were halted and the initial assessment is that the damage was “limited”. Yesterday’s news of sabotage attacks in the Straight of Hormuz also drove oil higher, but eventually those gains were washed away from the global risk off sell off that stemmed from the China and US trade war uncertainty.
Saudi Arabia pipeline disruption will only contribute to market tightness and oil may continue to rise higher if we see constructive trade banter between China and the US. The announcement of a firm date for Mnuchin and Lighthizer to return to Beijing for further talks should provide another bid for crude.
Bitcoin
Bitcoin is back above $8,000, closer to $8,200 in fact, and many are puzzled how when all risk assets are taking a pounding. Where are the short sellers? The cryptocurrency is also benefitting for not having a target on its back as short sellers are seeing more attractive moves with global equities for the time being. The recent bump was somewhat attributed to growing institutional demand, but that is unlikely warrant a near 40% jump in 5 days. No stranger to tulip-mania, bitcoin could easily see the rug pulled out from them, but for now bullish momentum is in control.
Gold
The precious metal is slightly softer on the day, just below $1,300 an ounce as markets take a breather from the Monday risk-off move and focus on optimism a trade deal will happen, just much later than what markets were initially pricing in.
