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Global Markets Jump On Hope Trade Tensions Fading, Despite Trump Slamming “STUPID TRADE”

Courtesy of ZeroHedge. View original post here.

It’s another “glass is half full” moment for global markets as Asian and European markets as well as S&P futures, are heading into the new week well in the green, at least for now, on renewed hopes a deal can be reached between the U.S. and China to avoid a full-blown trade war, following Trump statements over the weekend which have been described as conciliatory, although that may change quickly.

As a result, the Euro Stoxx 600 is up 0.6%, tracking a rise of 0.7% on S&P 500 futures, which is now back above the 200DMA and also the secondary support level of 2610…

… while the MSCI Asia Pac and Nikkei both closed 0.5% higher, leading to a general sea of green in this morning’s market snapshot.

The reason for the bout of optimism is that on Sunday, President Trump said that he will always be friends with Chinese President Xi Jinping no matter what happens regarding the dispute on trade, while also predicting that the US would prevail and reach agreements with China on trade issues while on the Sunday morning TV circuit,  White House economic adviser Kudlow explicitly stated that this is not a trade war, although his role as Trump’s “good cop” is well known by now.

A conciliatory tone, however, was clearly missing the morning when Trump once again tweeted on the topic of Chinese protectionism, and went so far as slamming the “STUPID TRADE” when it comes to cars between the US and China: 

When a car is sent to the United States from China, there is a Tariff to be paid of 2 1/2%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%. Does that sound like free or fair trade.  No, it sounds like STUPID TRADE -  going on for years!

When a car is sent to the United States from China, there is a Tariff to be paid of 2 1/2%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%. Does that sound like free or fair trade. No, it sounds like STUPID TRADE – going on for years!

— Donald J. Trump (@realDonaldTrump) April 9, 2018

Also not helping the “conciliation narrative” was a Bloomberg report at 3am ET that China is looking at CNY devaluation as a tool in their trade spat with the US, according to sources, while China’s Foreign Ministry said that there have been no negotiations with the US, and that the US is to blame for the trade friction.

Meanwhile, a hint that the trade war will only escalate from now, a PBoC policy adviser said that China should invest more in real assets rather than invest in US debt and that US is seeking to restrict China’s rise via trade war. However, there were also contradictory comments from China think-tank CASS that the nation is unlikely to use USTs as a trade war weapon. That said, this appears to be at odds with research from SGH Macro which suggests that their understanding is that China has halted purchases of USTs.

Also not helping global trade tensions were Sunday reports that no deal in principle regarding NAFTA is expected to be announced in the upcoming Summit of Americas in Lima, Peru, contrary to prior expectations.

Finally, moments ago China made it clear it would retaliate any moment to Trump’s latest proposed re-escalation:

  • CHINA HAS DRAFTED DETAILED COUNTERMEASURES ON U.S. TRADE MOVES
  • CHINA FOREIGN MINISTRY COMMENTS ON U.S. PLANNED TARIFFS

Yet despite all this, somehow optimism has prevailed so far, and banks and industrial companies led European stocks to a three-week high, mirroring gains in Asia; just beware of sharp air pockets lower as headlines and Trump tweets start coming out, crushing any fragile optimism that may have emerged.

For now, all ten sectors in Europe trade in positive territory with financial names outperforming as Deutsche Bank (+4.0%) leads the sector after news they have appointed Christian Sewing as CEO; Commerzbank (+1.5%) are also seen higher in sympathy. Elsewhere, energy names modestly lag their peers given price action in the energy sector. Deutsche Bank will be watched after the lender named Christian Sewing to succeed Cryan following weeks of drama. The stock has plummeted nearly 30% since the start of the year, but seems to have found a bottom around 11 euros over the last two weeks.

Asia was likewise buoyant, with the ASX 200 (+0.4%) shrugging off early indecision and trading positive, although weakness in mining and energy names capped upside, while Nikkei 225 (+0.5%) was lifted by JPY weakness. Elsewhere, Shanghai Comp. (+0.2%) recovered from the initial selling seen on the mainland’s re-open from a 4-day closure and first opportunity to react to the additional USD 100bln tariff consideration against China, while Hang Seng (+1.3%) outperformed on declining money market rates after the PBoC resumed liquidity operations after halting for over 2 weeks.

The dollar rebounded after sliding on Friday after a disappointing jobs report, while the Chinese yuan and other emerging market currencies slid amid news that China ia said to be evaluating the potential impact of a gradual yuan depreciation as one of its options in the trade spat with the U.S. The news raised interest around a speech by Chinese President Xi Jinping due Tuesday (more in a subsequent post).

Elsewhere in FX, most Group-of-10 currencies traded in tight ranges, with the yen edging lower as risk sentiment improved, while New Zealand’s dollar outperformed all peers on cross-flow activity against the Aussie. In Russia the currency plunged and the Moex Russia Index of stocks plunged the most in four years after the U.S. sanctioned some prominent Kremlin-connected billionaires and their companies.

Treasuries slipped, while euro-area bonds held steady as European equities climbed. In the U.S. this week, highlights include minutes of the FOMC’s March meeting and inflation data due Wednesday

Commodities rebounded after their worst weekly drop since mid-March, with oil and industrial metals rallying: WTI and Brent crude futures trade modestly higher but in close proximity to some of the lows seen on Friday amid trade concerns and an uptick in the Baker Hughes rig count. Elsewhere, energy-specific newsflow has been relatively quiet over the weekend but traders will continue to be mindful of geopolitical developments with US President Trump  warning Syrian President Bashar al-Assad and allies that they could pay a big price following a suspected chemical attack that killed dozens over the weekend. Furthermore, Iranian President Rouhani has stated that US President Trump will regret any withdrawal from the Iranian nuclear deal and that Iran’s response to the matter will be stronger than imagined. In metals markets, spot gold has fallen victim to the apparent return of risk appetite to the market and the modestly firmer USD. Elsewhere, Dalian iron ore slipped to a 10- month low in Asia-Pac trade amid ongoing trade concerns whilst aluminium has been seen higher during London hours amid the potential fallout of sanctions by the US on Russian aluminium producer Rusal.

Bulletin Headline Summary from RanSquawk

  • European equities begin the week on the front foot, supported by US efforts to alleviate trade concerns
  • Reports suggesting China is looking at CNY devaluation briefly lifts USD
  • Looking ahead, highlights include speeches from ECB’s Praet and Constancio

Market Snapshot

  • S&P 500 futures up 0.7% to 2,624.75
  • STOXX Europe 600 up 0.6% to 376.88
  • German 10Y yield rose 0.6 bps to 0.503%
  • Euro down 0.02% to $1.2278
  • Italian 10Y yield fell 0.8 bps to 1.531%
  • Spanish 10Y yield rose 1.1 bps to 1.243%
  • MXAP up 0.5% to 172.58
  • MXAPJ up 0.6% to 564.16
  • Nikkei up 0.5% to 21,678.26
  • Topix up 0.4% to 1,725.88
  • Hang Seng Index up 1.3% to 30,229.58
  • Shanghai Composite up 0.2% to 3,138.29
  • Sensex up 0.6% to 33,814.89
  • Australia S&P/ASX 200 up 0.3% to 5,808.67
  • Kospi up 0.6% to 2,444.08
  • Brent futures up 0.6% to $67.51/bbl
  • Gold spot down 0.2% to $1,329.84
  • U.S. Dollar Index little changed to 90.14

Top Overnight News from Bloomberg

  • A Syrian airbase was hit with a missile attack early on Monday, the country’s official news agency reported, a day after U.S. President Donald Trump warned of a “big price to pay” in response to reports of a chemical attack outside the nation’s capital. The Pentagon said it wasn’t conducting airstrikes
  • Deutsche Bank AG named Christian Sewing chief executive officer, ending John Cryan’s reign after less than three years as questions mount about the future direction of Europe’s largest investment bank
  • Xi Jinping’s first chance to hit back in person against Donald Trump’s barrage of tariff threats comes in a speech Tuesday at the Boao Forum for Asia — China’s answer to Davos — on the tropical island of Hainan
  • The U.S. has confirmed that Kim Jong Un is willing to talk to President Donald Trump about getting rid of his nuclear weapons, as South Korea claimed when it passed along the North Korean leader’s offer for a historic meeting, according to an administration official
  • Disapproval rating for Japanese Prime Minister Shinzo Abe’s Cabinet exceeded approval rating for the first time in 6 months in a survey conducted by JNN. Approval rating fell 9.3ppts to 40%, while the disapproval rating rose 9.5ppts to 58.4%. He now faces questions in parliament over a cover-up relating to reports on Japan’s controversial dispatch of troops to Iraq years ago
  • A majority of Britons support holding a vote on the final Brexit deal secured by Prime Minister Theresa May, according to a YouGov poll conducted for the pro-remain group Best for Britain
  • In speeches, interviews and Parliament testimony, eight of the nine BOE MPC members, including Governor Carney, have backed the view that tightening is warranted — and at a faster pace than previously thought. But Deputy Governor Cunliffe has been noticeably quiet, raising questions about the views of one the MPC’s most dovish members
  • Barclays is set to split its euro- rates trading team because of Brexit and proposes to move part of the unit that trades eurozone government bonds and interest rate swaps away from its main trading floor in London, the Financial Times reported
  • Hungarian Prime Minister Viktor Orban scored a crushing election victory to clinch a fourth term in a boost to Europe’s populist forces that are challenging the European Union’s multi-cultural, democratic values

Asian stocks initially began the week rangebound with a non-committal tone seen in the region following the stock rout last Friday on Wall St after President Trump upped the ante on possible trade tariffs against China and US NFP data fell short of estimates. However, sentiment then gradually improved throughout the trading day which was attributed to US efforts over the weekend to alleviate trade concerns in which President Trump predicted that the US would reach an agreement with China on trade and after White House economic adviser Kudlow explicitly stated that this is not a trade war. As such, ASX 200 (+0.4%) shrugged off the early indecision and traded positive, although weakness in mining and energy names capped upside, while Nikkei 225 (+0.5%) was lifted by JPY weakness. Elsewhere, Shanghai Comp. (+0.2%) recovered from the initial cobwebs seen on the mainland’s re-open from a 4-day closure and first opportunity to react to the additional USD 100bln tariff consideration against China, while Hang Seng (+1.3%) outperformed on declining money market rates after the PBoC resumed liquidity operations after halting for over 2 weeks. Finally, 10-yr JGBs were uneventful with marginal gains seen as they tracked recent price action in T-notes and with the BoJ also in the market to the tune of JPY 710bln in the belly to super-long end.

Top Asian News

  • Hong Kong’s Most Painful Short Keeps on Breaking Record Highs
  • Noble Group’s Bonds Fall After It Moves Head Office to London
  • Alibaba Funding Makes SenseTime World’s Most Valuable AI Startup

European bourses (Eurostoxx 50 +0.7%) have kicked the week off on the front-foot in fitting with the positivity seen during Asia-Pac hours. Asian bourses were supported by US efforts over the weekend to alleviate trade concerns in which President Trump predicted that the US would reach an agreement with China on trade and after White House economic adviser Kudlow explicitly stated that this is not a trade war. As such, all ten sectors in Europe trade in positive territory with financial names outperforming as Deutsche Bank (+4.0%) leads the sector after news they have appointed Christian Sewing as CEO; Commerzbank (+1.5%) are also seen higher in sympathy. Elsewhere, energy names modestly lag their peers given price action in the energy sector. In terms of other individual movers in what’s been a busy morning of equity newsflow, EDP (+3.8%) have been supported by reports of a potential bid by Engie (-0.5%), Rolls Royce (+1.9%) are seen higher after offloading L’Orange to Woodward for EUR 700mln and shares in Casino (+1.8%) have been lifted by a positive broker move at Deutsche Bank.

Top European News

  • Russian Stocks Sink Most in 2 Years on Sanctions, Syria Tensions
  • Deripaska’s Rusal Roiled by Sanctions as Aluminum Prices Jump
  • Russia Government Said to Seek Ways to Help Sanctioned Oligarchs
  • Any Russian Company Can Now Be Hit by Sanctions, Citigroup Warns
  • U.S. Sanctions Could Impact Oerlikon, Schmolz, Sulzer: ZKB

In FX, the DXY has seen a decent comeback from Friday’s post-NFP data lows and some short-lived gains on the back of source reports about China contemplating Yuan devaluation as an option in its ongoing war of words vs the US on trade and import tariffs. The Index briefly probed above 90.200 compared to lows just above 90.000 as USD/CNY spiked to just over 6.3250 after the PBoC’s official 6.3114 mid-point fix. The Kiwi is back on top of the G10 rankings, but again not really on anything fundamental for the currency or NZ-wise and more on cross flows as the AUD continues to underperform and bear the brunt of any negative repercussions from a full-blown US-China-global trade war. NZD/USD is back near 0.7300 and AUD/NZD is re-testing support just ahead of 1.0500 as AUD/USD continues to reject advances towards 0.7700. Another gainer vs the USD and other majors amidst ongoing bullish Sterling seasonal factors, as Cable pivots 1.4100, EUR/GBP straddles 0.8700 (market contacts noting offers at the figure earlier) and GBP/JPY reclaims 151.00, albeit just. Note, significantly firmer than Halifax house prices also  underpinned the Pound, fleetingly. CAD/EUR/JPY/CHF are all narrowly mixed vs the Greenback in typically quiet early  Monday trade, with USD/CAD still capped ahead of 1.2800 amidst more reports of positive NAFTA talks, though a  deal may not be reached in principle in time for the upcoming Summit of Americas as had been touted. EUR/USD is extremely contained between 1.2660-90, USD/JPY has recoiled around the 107.00 axis and USD/CHF is trapped within 0.9590-0.96

In commodities, WTI and Brent crude futures trade modestly higher but in close proximity to some of the lows seen on Friday amid trade concerns and an uptick in the Baker Hughes rig count. Elsewhere, energy-specific newsflow has been relatively quiet over the weekend but traders will continue to be mindful of geopolitical developments with US President Trump warning Syrian President Bashar al-Assad and allies that they could pay a big price following a suspected chemical attack that killed dozens over the weekend. Furthermore, Iranian President Rouhani has stated that US President Trump will regret any withdrawal from the Iranian nuclear deal and that Iran’s response to the matter will be stronger than imagined. In metals markets, spot gold has fallen victim to the apparent return of risk appetite to the market and the modestly firmer USD. Elsewhere, Dalian iron ore slipped to a 10- month low in Asia-Pac trade amid ongoing trade concerns whilst aluminium has been seen higher during London hours amid the potential fallout of sanctions by the US on Russian aluminium producer Rusal.

It is a quiet start to the week with February trade data in Germany, March house prices data in the UK and the April Sentix investor confidence reading for the Euro area. There is no data due in the US today. The ECB’s Praet is due to participate in a meeting of the European Finance Forum in Frankfurt and ECB’s Constancio in Brussels.

US Event Calendar

  • Nothing major scheduled

DB’s Jim Reid concludes the overnight wrap

Normally the week after payrolls is a little quiet but because the first Friday of the month (ie: payrolls day) was relatively late it means we move into US CPI week very quickly rather than having a week in between payroll and the inflation report. There’s not much point dissecting the consensus for core US CPI this month as the forecast has been 0.2% mom for 29 months now and this month is no different. Over this period 16 months have indeed been at this level but since the start of 2017 only 5 out of 14 have been in line with this forecast. Of the 9 misses, 7 have been below expectations. Outside of US inflation on Wednesday we also have the latest FOMC minutes on the same day, US earnings season starting (with three big banks on Friday the highlight), and of some intrigue we have Facebook’s Zuckerberg’s testimony to a Senate panel on Wednesday. This could impact tech and with it the rest of the market. Elsewhere in the US, the Congressional Budget Office will release the latest US budget deficit  projections this week which would likely determine the potential supply of treasuries over the coming months.

In Europe this week the key will be the final inflation prints due with March CPI reports out in France (Thursday), Germany (Friday) and Spain (Friday). Meanwhile in Asia, China’s CPI and PPI prints for March due on Wednesday and March trade data due on Friday are the highlights. The full day-by-day week ahead is at the end today.

Back to markets on Friday, the Stoxx 600 fell -0.35% while the S&P dropped -2.19% following a further rise in trade tensions and a weaker than expected payrolls report (more below). Over the weekend things haven’t escalated  much but President Trump tweeted “China will take down its trade barriers because it’s the right thing to do…taxes will become reciprocal & a deal will be made on intellectual property”. His officials have tried to calm the markets  somewhat though. Treasury secretary Mnuchin noted the US objective “is to continue to have discussions with China” while his economic adviser Mr Kudlow reiterated “we’re not going to end up in a trade war”. Conversely, White House adviser Navarro noted the threat of tariffs is not merely a bargaining chip, but also conceded that talks with China will take place before any tariffs will take effect. Elsewhere, China’s President Xi will be speaking at the Boao Forum on Tuesday, potentially providing more clues on the evolving situation.

This morning in Asia, markets are trading modestly higher with the Nikkei (+0.59%), Kospi (+0.59%) and Hang Seng  (+1.76%) all up while Chinese bourses are up c0.3% as trading resumed post the holidays. Futures on the S&P are up c0.5% while yields on UST 10y are up c2bp.

Continuing with the weekend developments, CNN has reported that the US and North Korea have been holding secret and direct talks to prepare for the Summit between President Trump and Kim Jong Un, while White House officials have confirmed that Kim is ready to discuss the topic of denuclearization. Elsewhere, Reuters has reported that an in principle NAFTA deal is unlikely at this week’s Lima Summit as negotiations between the three sides are not advanced enough yet.

Now recapping other markets performance from Friday. US bourses were all lower (Dow -2.34%, Nasdaq -2.28%) and all sectors within the S&P were in the red. Equities were initially weighed down by President Trump’s new instructions to the USTR to consider whether higher tariffs on an additional $100bn of goods would be appropriate Then losses accelerated during the day as the Chinese Commerce Ministry quickly responded by indicating that “we will follow suit to the end and at any cost…using new comprehensive countermeasures…” The VIX jumped 13.5% to 21.49 while European equities were relatively calm with modest losses across the board (DAX -0.52%; FTSE -0.22%).

Government bonds were broadly firmer with core 10y bond yields down 2-6bp, partly helped by the risk off tone in equities and the softer payrolls reports (UST 10y -5.9bp to 2.773%; Bunds -2.7bp). In FX, the US dollar index weakened -0.39% while the Euro and Sterling gained 0.33% and 0.64% respectively. Elsewhere, WTI oil retreated -2.33% to $62.06/bbl while Gold gained 0.49%.

Moving onto the various Fed speakers. On Friday, the Fed Chairman Powell has reiterated “further gradual increases in rates” as long as “the economy continues broadly on its current path” while the Fed’s Williams also noted “I’m  confident that we can carry on the process of gradually moving rates up over the next two years while seeing solid (economic) growth”. Over the weekend, the usually dovish Fed’s Evans noted that he is “optimistic that we’re going to get to 2% (CPI), it would be surprising if we didn’t” and that “…gradual (rate) increases is appropriate”. On trade, the Fed’s Powell said its “really too early” to estimate how tariffs will impact the US economy while the Fed’s Kashkari also said “it’s too soon for any of us to judge…none of us know how to weigh the probability of these different outcomes”. He added that the end result of the trade rhetoric “may be something in the middle (of a trade war and lots of chest pounding), where it’s a lot of blusters but it scares businesses and investors”.

Over in Italy, the League party leader Salvini sees “real chance” that the center-right coalition will be able to form the next government with the Five Star Movement as “policy differences are less pronounced that people think”. Looking ahead, the second round of talks with the various party leaders will resume this week in order to break the political gridlock since the March 4 election.

Back in credit, Michal in our team published a report “IG Strategy: Record Primary CSPP Purchases Helped Absorb Heavy March Supply” on Friday night. Apart from the usual analysis of the ECB QE, with a focus on credit, it notes that last month’s corporate supply included a record amount of CSPP-eligible paper, providing the ECB with the opportunity to load up in the primary. Indeed, it did so and in fact more than proportionately, receiving a record primary allocation estimated to be 50% greater than the average since the CSPP began. That has also pushed the share of the CSPP in the overall QE to an all-time high. While this time the ECB could help private investors pick up some of the excess supply in weak markets, it has been a timely reminder of the added pressure credit is going to be under when QE has been tapered off. You can download the full report here.

Before we take a look at today’s calendar, we wrap up with other data releases from Friday. In the US, the March change in non-farm payrolls was below market at 103k (vs. 185k expected) despite a +13k upward revision to    February.

Notably, the March reading followed a strong prior month print of 326k and the three-month average gain of 202k is still well above the 12-month average of 188k. Elsewhere, the average hourly earnings growth was in line at 0.3% mom and 2.7% yoy, while the unemployment rate was steady at 4.1% for the sixth consecutive month.

In Europe, Germany’s February IP was weaker than expected at -1.6% mom (vs. 0.2%) and 2.6% yoy (vs. 4.4%) while France’s February trade deficit was broadly in line (-€5.2 vs. -€5.3bln expected) with exports up 4.2% yoy and imports up 1.3% yoy.

It is a quiet start to the week with February trade data in Germany, March house prices data in the UK and the April Sentix investor confidence reading for the Euro area. There is no data due in the US today. The ECB’s Praet is due to participate in a meeting of the European Finance Forum in Frankfurt and ECB’s Constancio in Brussels.


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