MORNING CALL: Futures Plunge, May Returned Home Empty Hand

Trump refused to meet Chinese president Xi and investors are spooked due to the ongoing trade war. EU told May they are happy to see her again but no change in deal 

US futures are trading sharply lower and the S&P500 index in on track for its first weekly loss year-to-date. If it closes the week lower, this would be a strong a sell signal according to the candle pattern- a technical analysis.  Market confidence is derailed as trade war concerns have become a major hurdle again. It appears that President Trump and President Xi will not be meeting before the critical deadline (which is at the end of this month). If both countries fail to resolve the issue, the Trump administration is going to increase the tariffs on Chinese import at the end of this month, something which was issued before the truce was establised between the two parties. Investors were hoping that both presidents will be able to put the trade war behind them and move forward. This was one of the major factor that triggered the rally in the equity markets.

However, the tensions have anchored more on the back of the possibility that Trump may actually issue an executive order which would ban Chinese telecom giant from U.S. networks. If he signs such an order, the odds are in favour of this, it would compound the ongoing pessimism. Trump administration has already targeted Huawei, and now this Chinese telecom giant, uncertainty clouds are only becoming darker.

Global equity markets have been struggling to move higher, the upward move was very minimal and there was no support in terms of volume. This was an indication that these markets have run out of steam and they need a new catalyst to move higher. For the S&P 500 index, it was the 200-day moving average which capped any upward move. The price action for the Dow Jones and Nasdaq in terms of price patterns was also very similar- more stocks moving to the downside than the upside.

As long as the tremendous differences remain and trade fight continues, it is difficult to see that warning lights going out of power from traders’ dash board anytime soon.

Back in Europe, the economic data has started to show some serious cracks. The economic engine of the Eurozone: Germany, no longer has the same sort of power which it had when the European Central Bank has its liquidity taps running. The data is confirming economic weakness from 4Q is spilling into the 1Q and if it continues like this, the ECB can no longer keep its monetary policy on the same sailing path. Perhaps, global economy needs a collective effort from central banks; The Fed has already softened their hawkish stance, ECB will be forced to adopt this under the current circumstances, the BOE had the reality check yesterday- lowered its growth and inflation forecast and the People Bank Of China isn’t too far off from dovish stance either.

Closer to home, Theresa May left Brussels empty-handed as expected. The EU told her they are in no mood of opening the negotiations again but there is no harm to come and say hello again if she wants. She failed to achieve anything from the EU and without having anything new, the possibility of a parliamentary vote taking place next week is minuscule. This increases the odds of the U.K. kicked out of the EU without any deal. The government needs to have a plan B to avoid this catastrophe and it appears no one seem to be carrying about it.