Equities continue to be driven by trade talk; Oil rises on DOE draw

Summary:

  • Stocks bounce. WH spokesman “China wants a deal”

  • Uber drivers protest ahead of IPO

  • DE30: March industrial output brings some relief

  • Oil back in the green after surprise inventory draw

  • GBP under pressure as cross-party talks stall

 

There’s been a bounce for risk assets heading into the European cash close after comments from a White House spokesman have raised hopes of a breakthrough in the US-China trade tensions. Sanders said that he has received an indication that China wants to make a trade deal and while the details around this remain sketchy, it has provided a boost for stocks and Oil.   

 

Earlier, stocks were in the red with reports of a diplomatic cable from Beijing to the US late on Friday night revealing systematic edits to the nearly 150-page trade agreement and dashed hopes that the world’s two largest economies are on the verge of calling a truce in their ongoing trade war. According to Reuters: “In each of the seven chapters of the draft trade deal, China had deleted its commitments to change laws to resolve core complaints that caused the United States to launch a trade war: theft of U.S. intellectual property and trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation.”

 

A solid reading of German industrial production could have helped buttress sentiment to some extent overshadowing concerns with regard to a threat of higher tariffs. Moreover, the trade data from China showed an improvement in imports in April suggesting that a set of measures Beijing has rolled out recently is beginning to support domestic demand. German industrial production for March showed a 0.5% increase in monthly terms, easily beating the median estimate of a 0.5% decrease. On the other hand, a reading for February was revised down to 0.4% from 0.7%. However, the overall tone appears to be quite positive. Having at disposal of a set of industrial data for the first quarter we think that GDP may have grown around 0.4/0.5% in quarterly terms. If so, it would be quite solid value despite internal difficulties the German economy had to deal with over that period of time. Furthermore, let us also refer to the factory orders for March we were offered on Tuesday. It showed a noticeable increase in foreign orders (from the Euro Area) while domestic orders remained stagnant. It implies that we had a revival in foregin demand in March and if this trend keeps unfolding in the coming months, it could bode well for the overall improvement in European manufacturing.

 

An unexpected drawdown in the latest inventory data from the US has seen the price of Oil recover from some early weakness to trade back higher on the day. After a monster rise of 9.9M last time out, consensus forecasts were for a build of 1.1M with the print of -4.0M coming as something of a downside surprise. Last night’s API number came in at +2.8M. Looking at the components of the report there was more good news for crude bulls, with US production dropping and draws seen in both gasoline and distillates. In terms of market reaction it has been positive as you’d expect, but it is perhaps telling that there’s not been a strong move higher in the Oil price. Longer term charts reveal that we are currently at a possible turning point and as is often the case when markets hint at reversals, there’s been some volatile trade of late. Monday saw price begin the week sharply lower after the escalation of US-China trade tensions but the market staged an impressive recovery to end firmly higher before Lighthizer’s comments sent price back lower. With the 8 and 21 EMAs converging there is some suggestion the trend could be turning lower but the market really needs to drop below the 23.6% fib at 68.95 before any further downside can occur. In terms of possible resistance the weekly highs around 71.80 are an area of possible interest and should the market break above these then it will have moved back above the EMAs and potentially negated a bearish cross.     

 

The Pound has come back under pressure today with the GBPUSD rate falling back below the $1.30 handle with negative Brexit news weighing on the pound as cross-party talks seem to be set to end with no breakthrough. The 1.2975 region has been retested again as the market drops for a 3rd consecutive day after ending last week with a flourish and how price reacts here could prove pivotal.

 

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