The European stock market (Stoxx-600) closed around 378.06 Wednesday, surged almost +0.46% and recovered from a deep loss (-0.68%) as Trump may delay EU auto tariffs decision up to six months (as he blinks on his global trade war agenda). As a result, EU automobiles soared and helped the market in late trade.
The global risk-on sentiment, Dow as-well-as European stock markets jumped after reports that Trump may postpone EU auto tariffs decision up to six months amid increasing suspense over China trade deal. This is contrary to Trump’s late Tuesday comments that he viewed the EU as same as China, just a “small” version (of China).
As per reports: “The Trump administration plans to delay auto tariffs by up to six months, stopping itself for now from widening global trade disputes”. As a pointer, the decision on EU auto-tariff was due this week and Trump admin has until Saturday (18th May) to decide whether to go for the EU auto tariffs and there would be another 180-days grace period to decide finally on the auto tariffs as long as it is negotiating with the EU (in this case).
The global risk-on trade as-well-as Dow, Stoxx-600, EUR, USD jumped as Trump virtually dials back his EU auto tariffs rhetoric amid China trade war tensions as he is clearly blinking in launching his trade war agenda on other fronts such as with the EU/Germany and also with Japan. Trump is clearly seeking support from America’s traditional allies EU and Japan in his trade/cold war against China to isolate the nation amid growing trade and diplomatic relationship between the EU and China.
But at the same time, Trump does not cancel his EU auto tariffs narratives, which will keep the trade tension alive. The EU is not ready to negotiate agricultural trade with the US under the pressure of Trump auto tariffs.
There are also some geopolitical angles in Trump’s decision to delay EU auto tariffs as Trump need the EU support for his bellicose sanction policies against Iran. Also presently, the EU is negotiating a trade agreement with Japan and Trump admin may want to wait out these negotiations before jumping the gun. The market is now relieved that Trump will not launch his global/EU/Japan auto tariffs war as long as China trade war issues settle.
But this is also an indication on the part of Trump admin that they are expecting a long period of U.S.-China trade war/truce suspense for at least next six months and that is a “long winter” for the global economy as when China “sneezes”, the rest of the world catches a “cold”. Now it’s almost clear that Trump is not so much confident on his own optimism about China trade deal and at the same time he is not ready to launch his trade war agenda on another front (with Germany, Japan or even with Mexico and Canada) and make it the almost the U.S vs rest of the world (trade war).
On China trade, there was also an optimistic report that “The U.S. and China are negotiating specific dates for a delegation to travel to Beijing to revive trade negotiations, which could be as early as next week”.
Earlier in a Senate hearing, Mnuchin said: “The US is in serious talks with China to improve trade ties but China recently retreated on many trade commitments. I will likely go to Beijing ‘at some point’ to continue talks, but there is still a lot of work to do”.
On early Wednesday, Mnuchin’s spokesman said: “As the secretary has indicated, the negotiations will continue. We do anticipate, as the secretary indicated yesterday, that we will plan for a meeting in China at some point soon”.
Earlier Stoxx-600 was under stress on lingering Trump trade war, this time with the EU as Trump said late Tuesday that he viewed the EU as same as China, just a “small” version (of China). The Europan market was also affected by growing political and budget uncertainty in Italy, subdued earnings from some banks, fading merger talks between some banks, coupled with growing “war of words” on trade between the U.S. and China.
The market was also under stress on soft US and China economic data (industrial production, retail sales, and fixed asset investment) and subsequent concern of a synchronized global slowdown, thanks to Trump trade war agenda, while helped by surprised Q1 GDP in Germany, returning to growth. The European market was also under stress on the concern of an auto/general trade war with the US ahead of 18th May deadline.
Overall on Wednesday, the Europan market was helped by China trade sensitive automobiles, industrials, techs, and basic materials. Energies also helped on higher oil amid growing middle east geopolitical tensions (U.S.-Iran).
On early Thursday, Stoxx-600 slumped to a low of 376.40 on renewed U.S.-China trade tensions after U.S. sanctions on Huawei. The U.S. Commerce Department said it is “adding Huawei Technologies Co Ltd and 70 affiliates to its Entity List, which bans the company from acquiring components and technology from U.S. firms without government approval”.
On late Wednesday, Trump signed an executive order to declare a national emergency relating to threats against information and communications technology and services, apparently in a move against China, that allows the U.S. to ban telecommunications network gear and services from foreign adversaries.
The move, which was expected, could restrict Chinese telecom firms Huawei and ZTE (HK:0763) from selling their equipment in the U.S. Shortly afterward, the US Department of Commerce said it had put Huawei on a blacklist that could forbid it from doing business with American companies. Overall, this could infuriate China further as Trump has now launched a cold war in the disguise of a trade war, while trying to keep the EU as “friends”.
Technical View (DAX-30, CAC-40, MIB-40, and FTSE-100):
Technically whatever may be the narrative, DAX-30 has to sustain over 12450 for a further rally to 12600*/12650-12725/12820-12875*/13095-13210*/13315 in the near term (under bullish case scenario).
On the flip side, sustaining below 12425-12375, DAX-30 may fall to 12230/12180*-12140/12100 and 12000*/11900-11830/11750 and further to 11600/11450*-11370/11320 in the near term (under bear case scenario).
Technically whatever may be the narrative, CAC-40 has to sustain over 5555 for a further rally to 5605*/5675-5715/5855 and 5925/6000-6075/6125* in the near term (under bullish case scenario).
On the flip side, sustaining below 5540, CAC-40 may fall to 5470/5425*-5380/5305* and 5275/5245*-5200/5180* and further 5130-5070 in the near term (under bear case scenario).
Technically whatever may be the narrative, MIB-40 has to sustain over 21650 for a further rally 21745/21925-22025/22105 and 22200/22295-22380*/22445 in the near term (under bullish case scenario).
On the flip side, sustaining below 21630-21570, MIB-40 may fall to 21440/21350-21245/20900 and 20795/20575-20525/20475 and further 20395-20295 in the near term (under bear case scenario).
Technically whatever may be the narrative, FTSE-100 has to sustain over 7525 for a further rally to 7600/7715-7775/7890 and 7930/8000-8050/8115 in the near term (under bullish case scenario).
On the flip side, sustaining below 7500-7485 FTSE-100 may fall to 7390/7350*-7290/7220* and 7150/7095-7045/7000 in the near term (under bear case scenario).
Germany 30
Germany’s export-heavy and also China trade and Brexit sensitive DAX-30 jumped +0.90% to close around 12099.57, at the session high; earlier it made a low of 11862.21 in a day of volatile trading. Germany was boosted by automobiles (Daimler, VW, BMW), techs, industrials, construction/real estate, and foods & beverages, while dragged by metals (ThyssenKrupp) and healthcare (Merck).
France 40
France’s CAC-40 surged +0.62% to close around 5374.26, at the session high; earlier it made a low of 5297.30 in a day of volatile trading. France was supported by techs (STMicroelectronics), industrials and consumer services, while dragged by financials (Credit Agricole (PA:CAGR)) and selected software (Capgemini) and automobiles (Renault (PA:RENA)).
Italy 40
Italy’s FTSE MIB-40 edged down -0.14% to close around 20863.14, near the session high of 20904.32; earlier it made a low of 20556.40 in a day of volatile trading. Italy underperformed the European market as there was a concern over growing fiscal imbalances of Italy after the populist government indicated that it’s ready to breach EU fiscal rules for the sake of fiscal stimulus and employment. Italian banks slumped on higher budget/fiscal deficit worries and higher BTP yields as Italy’s deputy PM Salvini upped his ante on country’s fiscal deficit.
UK 100
Britain’s FTSE-100 jumped +0.76% to close around 7296.95, near the session high of 7303.73; earlier it made a low of 7223.08 in the day of volatile trading. The FTSE-100 was helped by exporters/MNCs amid lower GBP on lingering Brexit uncertainty. The British market was also helped by EU auto optimism as Trump blinks. Automobiles, Basic materials, energies and also Asia savvy banks (HSBC) helped.