Trade Wars, Word Wars And Tweets

The week’s geopolitical events continue to unfold. Syria is the top of the list as we wait for Trump to make an announcement on whether or not any missiles attacks…much tweeted about by way of threats to Russia, will go ahead.

It has done nothing to settle nerves in the financial markets, still concerned about trade wars.

China’s conciliatory approach has been seen by the Whitehouse as a step forward though no doubt action will be required and not just words.

It was interesting to see the Chinese president blink first in the tariff stand-off. One has to question why.

Maybe if we retreat like good old fashioned analysts to the fundamental realities we can see what is at stake. Take the Chinese CPI and bear in mind that Chinese data is somewhat massaged by the State if you know what I mean 🙂 Despite this, CPI missed the estimate and PPI fell just a fraction below. Last week te Caixin, the more reliable private data, showed PMI’s slipping towards 50…the watershed between economic growth and recession.

The fact is all is not well with growth in China and that affects the entire globe and threatens the fledgeling global recovery. President Xi cannot afford a tariff war…neither can anyone else.

The focus today economically was on US CPI twinned with the FOMC minutes release. In the event, it was overshadowed by geopolitics which has seen buying in Gold and a rally in crude.

And a look at the data itself was not encouraging. CPI fell to -0.1% the core number held the estimate at 0,2% It is not encouraging in terms of US growth and that spill over into rate speculation.

The FOMC minutes, however, had a definite hawkish lean. Outlooks were strengthening including inflation. Gradual was still the keyword and there, Powell is carefully balancing policy. Of course, that was before CPI results.

So let us take a look at the basic macro charts for an understanding of the market sentiment.

The equities are under pressure…this is earnings season so expect choppiness. Here is the DOW and the bias in the longer term is still down but beware the volatility or improving or worsening political conditions:

 

Gold has benefited has benefited from war talk although backed off from the highs. I missed the entry last week, spot on the level though at 1320, still bias long for the longer term hold:

 

Crude also rallied on the war talk, whilst the USD remained under pressure:

 

The bond markets stay under close scrutiny. The US treasuries have just about held above the break and again are not impressed with the economic news from the US although they too backed away from the highs of the day. They remain in a narrow range but a bias to the upside in current conditions:

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So, a more risk-off feel as the JPY strengthened and we will be watching the Nikkei for sentiment clues going forward:

 

The list on Monday was short and that in no way reflects or undermines the opportunities the chosen trade ideas offer.

I am already short the USDJPY from the trendline:

 

The Watchlist

That leaves just three opportunities to watch

The AUDJPY

The levels are prepared!

I am prepared to wait for confirmation and the right supporting fundamentals for equities. here is the current favourite:

And of course, Gold, the charts and the explanation are above. Levels are ready for long opportunities.

Geopolitics can make for a very unpredictable and fast-changing environment. We are watching Syrian troubles concurrently with a continuing Meuller inquiry and trade wars. On top of that is the nerve agent/spy issue which has become an international incident. I am happy to wait and trade the big levels on my favourite charts and not intending to take on too much news driven risk. I will keep the position I have, and add to it if the chance comes and I am also interested in the AUDJPY.

Thursday will be more of the same and expect more tweets and/or action from the Whitehouse. Kuroda is speaking as well on Thursday and a little hawkish lean seen here, so something to watch for. Carney from the BOE may give some clues in a speech also Thursday and we have the China trade balance o Friday.

The big economic news is behind us and overshadowed for now by the many geopolitical threats which are surfacing, but the point is the data we see unfolding pretty much from everywhere in the G10 is not filling us, or the market with any real confidence and that is hardly surprising.

I will be back at the weekend with a full review and a peek at next week and what we can expect.

Judith Waker