As Trump-Xi prepare to meet, Beijing jabs at Washington

Indices

This G20 meeting might as well be the G2 this time around. The United States and China are the main topic, the two having hit economies across the globe with their trade dispute.

Markets have long been hoping that the gathering in Osaka might provide an opportunity for presidents Trump and Xi to meet and work through their differences. It was only a few days ago that state officials confirmed this was happening. Trump had previously dashed any hopes of a discussion.

But while Trump and Xi are preparing to meet to smooth things over, back in Beijing the rhetoric was still accusatory. Vice Commerce Minister Wang Shouwen stated that China wanted the US government to cease “inappropriate” actions against domestic companies.

Beijing hits back at US Commerce Department

On Friday the US Commerce Department blacklisted five Chinese companies from buying components made in the US. It already hit Huawei – the Chinese smartphone giant – which such a ban in May.
CNBC reported that Mr Wang, speaking in Mandarin, commented Monday that:

“We hope the US side, under the principles of free trade and the spirit of WTO principles, can cancel these inappropriate measures against Chinese companies, and remove them from the entity list. This has benefits for both sides.”

S&P 500 1-day chart, 15.15 BST, June 24th, 2019

Markets are currently holding their breath, but today’s response from China is a good reminder that nothing has changed until the two leaders agree a deal.

Dow Cash 1-day chart, 15.15 BST, June 24th, 2019

We’ve been much closer to expecting a resolution before – there was even a deadline – only for things to worsen again. Trump and Xi are sure to make positive noises after their talk, and that will likely boost stocks, but behind their leaders, the governments of the US and China continue to throw punches.

Bitcoin jumps, stocks steady ahead of G20

Forex
Morning Note

All that glitters is not gold. Bitcoin is sparkling again but beware…breakdown’s coming up ‘round the bend. 

Bitcoin jumped above $11,000, taking it to its highest level since March 2018. Futures are back down to $10,855 around send time. Investors are ignoring what happened the last time we saw parabolic rises like this. Is it different this time? No, but people have short memories. Facebook’s Libra white paper may have stoked renewed interest in cryptos at a time when the buzz had already returned.

Bitcoin is more mature etc, but the fundamentals of this scheme remain unaltered. What I would say is that arguably big money is starting to view this differently and think it could be very costly to ignore if they get left behind. 

It may also be that the sharp liquidity boost we’ve seen from central banks is helping bitcoin. As we noted last week, it was only a matter of time before the $10k level was taken out it and now ultimately a retest of the ATHs near $20k looks very plausible. 

Once this market builds up a head of steam, it’s hard to stop it. As previously argued, this is a big momentum play and the more buzz there is, the more that traders will pile in behind the rising wave. Bears could get burned before the market turns – maybe better to wait and let it fizzle out, which it will eventually. The more it rallies, the bigger the blow-up when it comes. However, we should expect some pullbacks and retracements along the way. 

Equities, G20 

Stocks are maybe looking a little softer with the S&P 500 easing off its all-time highs on Friday and we’ve had a mixed bag from Asia overnight. Japan closed a shade higher at 21,285.  

Futures indicate European shares are trading on the flatline as investors take a breather and look ahead to the G20 later in the week. FTSE 100 finding support at 7400, with resistance at 7460.

Coming up this week the G20 is centre stage for markets. President Donald Trump is expected to meet Chinese counterpart XI Jinping at this week’s G20 meeting in Osaka. 

Last week Mr Trump tweeted: “Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.” No one thinks the US and China will do a deal in Osaka, but there is some hope that we will have a positive development that marks a shift in the rhetoric and a re-energising of talks following the breakdown in the recent discussions.  

Iran, oil 

Iranian tensions are not going away, providing some support for oil. Brent was trading around the $65 mark, with WTI at $58. Fundamentals remain bearish but the uncertainty in the Middle East, specifically the risk of a closure of sea lanes, is enough to keep crude above water. 

Since last week we’ve had news of the US launching a cyberattack on Iran and warnings from Iran about what a war would mean. Expect lots of turbulence from this but ultimately it does not look like the White House is spoiling for a fight. The risk is, as ever, in a miscalculation. 

Gold remained firm, holding above $1400 as a weaker dollar combined with dovish central banks kept traders happy to bid up the metal. Geopolitical tensions may be a small factor, but ultimately gold has huge negative correlation with real yields, which have come right down. Friday’s move off the lows later in the session were key and the bull trend remains intact. A rebound in USD could trap bulls.

FX 

The dollar is softer with the euro and sterling holding gains. The euro is holding at a three-month high around 1.1380 – look for a push to 1.14. 

Trading around 1.2760, GBPUSD is facing stiff resistance from previous highs and a big Fib level coming in, so we need to see this level breached on the upside to be more confident that the pound can maintain its gains.  

Coming up this week – Fed speakers and the PCE inflation print will keep the FX market interested.

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