GBP/USD – Pound under pressure as manufacturing orders sink

After a flat start to the week, GBP/USD has edged lower on Tuesday. Currently, the pair is trading at 1.2694, down 0.23% on the day. On the release front, Mark Carney’s testimony on inflation before a parliamentary committee has been cancelled. British CBI Industrial Order Expectations slipped to -10, weaker than the estimate of -6. This marked the lowest score since November, as manufacturing orders continue to decline. In the U.S., existing home sales is projected to climb sharply to 5.35 million.

Brexit has been on the backburner in recent weeks, but the upcoming election for the European Parliament could boost anti-Brexit parties. Key issues in the election, which covers all 28 member EU states, include the economic slowdown, the migrant crisis and the rise in Euroskpeticism. Euro-skeptics increased their representation in parliament from 12% to 25% in the last election, and with the dramatic increase in strength of populist parties, this trend could well continue. The U.K. will participate in the vote, although the country is on its way out of the EU. The Conservatives are expected to have a poor showing, while anti-Brexit parties could make major gains. This could weigh on the British pound which plunged 2.1% last week.

U.S.- China trade tensions continues to simmer, which has boosted the safe-haven U.S. dollar. On Friday, the Trump administration had announced it was imposing trade sanctions on the Chinese telecom giant, a move which sent stock markets reeling on Monday. However, the U.S. Commerce Department has taken a step back, saying that it will provide 3-month exemptions to U.S. companies that sell to Huawei. The tussle over Huawei has exacerbated the trade war between the two economic giants, and risk appetite will remain soft until the sides resume negotiations.

Sterling Trades at Five Month Lows on Brexit worries

Dow futures pop 150 points after US eases trade restrictions on Huawei

GBP/USD Fundamentals

Monday (May 20)

  • 9:30 British CB Leading Index. Actual -0.5%
  • 12:30 British MPC Member Broadbent Speaks
  • 13:05 US FOMC Member Clarida Speaks
  • 19:00 US Federal Reserve Chair Powell Speaks

Tuesday (May 21)

  • 6:00 British CBI Industrial Order Expectations. Estimate -6
  • 10:00 US Existing Home Sales. Estimate 5.35M

*All release times are DST

*Key events are in bold

GBP/USD for Tuesday, May 21, 2019

GBP/USD May 21 at 7:40 DST

Open: 1.2723 High: 1.2735 Low: 1.2685 Close: 1.2694

GBP/USD Technical

GBP/USD was flat in the Asian session and has edged lower in European trade

  • 1.2615 is the next support level
  • 1.2723 is a weak resistance line. It was tested earlier in the session
  • Current range: 1.2615 to 1.2723

Further levels in both directions:

  • Below: 1.2615, 1.2477 and 1.2401
  • Above: 1.2723,  1.2841, 1.2910 and 1.3000

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

DAX recovers as U.S. softens sanctions on Huawei

The volatility continues for the DAX index this week. Currently, the index is at 12,176, up 1.1% on the day, after falling 1.6% on Monday. For a second successive day, there are no major German or European events on the schedule. The eurozone releases consumer confidence, which is expected to remain in negative territory, with a forecast of -8.

The DAX had a dismal start to the week, but has rebounded on Tuesday, as the U.S. lowered tensions over the Huawei crisis. The Trump administration had announced it was imposing trade sanctions on the Chinese telecom giant, a move which sent stock markets reeling on Monday. However, the U.S. Commerce Department has taken a step back, saying that it will provide 3-month exemptions to U.S. companies that sell to Huawei. The tussle over Huawei has exacerbated the trade war between the two economic giants, and risk appetite will remain soft until the sides resume negotiations.

Voters in all 28 members of the European Union will head to the polls for a 4-day election, beginning on Thursday, to elect members to the European Parliament. Election turnout has been on the decline, with only 43% of eligible voters casting a vote in 2014. Key issues included the economic slowdown, the migrant crisis and the rise in Euroskpeticism. Euro-skeptics increased their representation in parliament from 12% to 25% in the last election, and with the dramatic increase in strength of populist parties, this trend could well continue. A strong showing by parties with an anti-EU agenda could weaken the euro. As well, the outcome of the vote could have an impact on the choice of the new head of the ECB, as Mario Draghi steps down in October, after an eight-year term.

RBA’s Lowe caps Aussie’s election rally

The empire strikes back?

Economic Calendar

Tuesday (May 21)

  • 10:00 Eurozone Consumer Confidence. Estimate -8

*All release times are DST

*Key events are in bold

DAX, Tuesday, May 21 at 6:45 DST

Previous Close: 12,041 Open: 12,101 Low: 12,066 High: 12,176 Close: 12,175

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dow futures pop 150 points after US eases trade restrictions on Huawei

**Reminder to sign up for OANDA’s Live Market Analysis Webinar on Tuesday, May 21st at 7:30 am ET. Senior Market Analyst Ed Moya will discuss key themes impacting financial markets and provide real-time analysis. Register Here

U.S. stock index futures were higher Tuesday morning, as market participants continue to monitor trade developments between the world’s two largest economies.

At around 6:20 a.m. ET, Dow futures indicated a positive open of about 150 points. Futures on the S&P and Nasdaq were both seen higher, as well.

On Monday, the U.S. government temporarily eased some trade restrictions imposed on China’s Huawei Technologies last week. The move sought to minimize disruption for the telecom company’s customers around the world.

The U.S. Commerce Department said it would allow Huawei to purchase American-made goods in order to maintain existing networks and provide software updates to existing Huawei handsets until August 19.

The temporary easing of trade restrictions won some respite with market participants ahead of Tuesday’s opening bell. However, an increasingly fraught atmosphere between Washington and Beijing has continued to keep financial markets on edge, with investors abandoning any hopes of an early resolution to the protracted trade dispute.

On the data front, the Philadelphia Fed non-manufacturing survey for May is set to come out at around 8:30 a.m. ET, followed by existing home sales figures for April at around 10 a.m. ET.

In corporate news, Home Depot, AutoZone, and TJX Cos.are among some of the companies expected to release their latest quarterly results before the opening bell.

Nordstrom, Toll Brothers, and Pure Storage are all set to report their latest figures after market close.

CNBC

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏

Ed Moya

Ed Moya

DAX recovers as U.S. eases restrictions on Huawei

The volatility continues for the DAX index this week. Currently, the index is at 12,176, up 1.1% on the day, after falling 1.6% on Monday. For a second successive day, there are no major German or European events on the schedule. The eurozone releases consumer confidence, which is expected to remain in negative territory, with a forecast of -8.

The DAX had a dismal start to the week, but has rebounded on Tuesday, as the U.S. lowered tensions over the Huawei crisis. The Trump administration had announced it was imposing trade sanctions on the Chinese telecom giant, a move which sent stock markets reeling on Monday. However, the U.S. Commerce Department has taken a step back, saying that it will provide 3-month exemptions to U.S. companies that sell to Huawei. The tussle over Huawei has exacerbated the trade war between the two economic giants, and risk appetite will remain soft until the sides resume negotiations.

Voters in all 28 members of the European Union will head to the polls for a 4-day election, beginning on Thursday, to elect members to the European Parliament. Election turnout has been on the decline, with only 43% of eligible voters casting a vote in 2014. Key issues included the economic slowdown, the migrant crisis and the rise in Euroskpeticism. Euro-skeptics increased their representation in parliament from 12% to 25% in the last election, and with the dramatic increase in strength of populist parties, this trend could well continue. A strong showing by parties with an anti-EU agenda could weaken the euro. As well, the outcome of the vote could have an impact on the choice of the new head of the ECB, as Mario Draghi steps down in October, after an eight-year term.

RBA’s Lowe caps Aussie’s election rally

The empire strikes back?

Economic Calendar

Tuesday (May 21)

  • 10:00 Eurozone Consumer Confidence. Estimate -8

*All release times are DST

*Key events are in bold

DAX, Tuesday, May 21 at 6:45 DST

Previous Close: 12,041 Open: 12,101 Low: 12,066 High: 12,176 Close: 12,175

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Sterling Trades at Five Month Lows on Brexit worries

Tuesday May 21: Five things the markets are talking about

European equities along with U.S. futures are trading a tad higher following a mixed session in Asia overnight as the Sino-U.S trade-war rhetoric and actions continue. The ‘big’ dollar remains better bid in a contained trading range while U.S Treasury yields are steady.

Yesterday, U.S markets ended broadly lower amid focus on Huawei suppliers and chipmakers, however, granting tech equities relief overnight was the White House permitting a temporary three-month reprieve to U.S companies doing business with Huawei.

In FX, the AUD has erased most of its surprise weekend election gains as the RBA minutes indicated the possibility of a rate cut at next month’s monetary policy meeting, while in Turkey, authorities again made another attempt to support the beleaguer TRY. In the U.K, sterling has fallen to a new five month low as PM May attempts to gain support for her Brexit Withdrawal Bill.

In commodities, crude oil remains better bid on signs that OPEC+ will extend production cuts beyond next month.

Note: Bank of England (BoE) Governor Mark Carney’s planned inflation hearing appearance before Parliament today has been postponed and has yet to be rescheduled.

On tap: NZD retail sales (May 21), U.K CPI, CAD retail sales & FOMC meeting minutes (May 22), Fr. & Gr. flash services & manufacturing PMI, Day 1 EUR parliamentary elections (May 23), GBP retail sales, Day 2 EUR parliamentary elections & U.S durable goods (May 24), Day 3 EUR parliamentary elections (May 25).

1. Stocks mixed performance

In Japan, the Nikkei slipped overnight as the U.S blacklisting of Huawei took a heavy toll on suppliers to the Chinese telecoms’ equipment maker, but the downside was limited after the U.S temporarily postponed trade restrictions. The Nikkei ended -0.1% lower, while the broader Topix dropped a deeper -0.3%.

Down-under, Aussie shares advanced overnight, supported by financials after mortgage rules were eased in a bid to spur borrowing and the chance of an RBA June interest rate cut increased. The S&P/ASX 200 index closed out +0.4% higher. In S. Korea, the Kospi stock index ended firmer, snapping eight sessions of net selling, with gains in heavyweight Samsung supporting the benchmark. The index closed up +0.24%.

In China, stocks gained as investors “took heart” from the temporary easing of U.S trade restrictions on Chinese telecoms firm Huawei. At the close, the Shanghai Composite index was up +1.23%, while the blue-chip CSI300 index ended +1.35% higher.

In Hong Kong, investors had a different reaction. The Hang Seng index ended at its lowest close in nearly 16 weeks as investors worried about the risk of escalating Sino-U.S trade tensions and this despite a temporary easing of restrictions on China’s Huawei. At the close of trade, the Hang Seng index was down -0.47%, while the Hang Seng China Enterprises index closed +0.01% higher.

In Europe, regional bourses are trading mostly positive on news that Huawei has been granted a temporary 90-days license in the U.S.

U.S stocks are set to open in the ‘black’ (+0.25%)

Indices: Stoxx600 +0.37% at 378.86, FTSE +0.47% at 7,345.56, DAX +0.63% at 12,117.25, CAC-40 +0.26% at 5,372.76, IBEX-35 +0.21% at 9,219.00, FTSE MIB +0.50% at 20,642.50, SMI +0.25% at 9,605.80, S&P 500 Futures +0.25%

2. Oil higher on escalating U.S-Iran tensions

Oil remains better bid on escalating U.S-Iran tensions and amid market expectations that OPEC+ will continue to withhold supply this year. However, gains are been capped by investor concerns that a prolonged Sino-U.S trade war could lead to a global economic slowdown.

Brent crude futures are at +$72.18 per barrel, up +21c, or +0.3% from yesterday’s close. While West Texas Intermediate (WTI) crude futures are up +31c, or +0.5% at +$63.41 per barrel.

After a rocket attack in Iraq’s capital Baghdad yesterday, President Trump has threatened Iran with “great force” if it attacked U.S interests in the Middle East. Iran has said today “that it would resist U.S pressure,” declining further talks under current circumstances.

The crude market has already been tight, supported by OPEC+ withholding supply since the start of this year.

Note: An OPEC+ meeting has been scheduled for June 25-26 to discuss the policy, but the group is now considering moving the event to July 3-4, as the Studies signal a willingness to continue withholding output.

Prices have been capped by investor worries that the U.S and China are “digging in for a long, costly trade war” that could result in a broad global slowdown.

Ahead of the U.S open, gold prices have eased a tad after touching their two-week low yesterday, on increasing bets that the Fed will ‘not’ cut interest rates this year which is supporting the USD and hurting the ‘yellow metals’ safe-haven appeal. Spot gold edged -0.1% lower to +$1,275.81 per ounce, while U.S gold futures have also eased -0.1% to +$1,275.40 an ounce.

3. German Bund yields edge up but remain in negative territory

German 10-year Bund yields have backed up a tad, but remain comfortably in negative territory, as range-trading continues. Macroeconomic and political risks have been sovereign bonds key drivers, with supply emerging as another potential mover. The 10-year Bund yield trades at -0.08%, up +0.6 bps.

E.U bond issues have seen strong demand this year given a backdrop of weak economic growth and expectations that the ECB will maintain its “ultra-easy” monetary policy stance for the foreseeable future.

Global yields have fallen sharply on the back of renewed U.S./China trade tensions and Brexit uncertainty, however, a perception that central banks will have to take further action to support means that any rise in yields should be limited for now.

Elsewhere, the yield on U.S 10-year Treasuries is unchanged at +2.42%, the highest in more than a week. In the U.K, the 10-year Gilt yield has gained +1 bps to +1.067%, while in Italy, the 10-year BTP yield increased +1 bps to +2.709%.

4. Cable falls to new five-month low

The ‘big’ dollar is holding atop of its three-week high as we head stateside, supported by higher U.S yields and as intensifying trade frictions between the U.S and China support investors’ appetite for the “safe-haven” greenback.

Sterling (£1.2693) has dropped to a new five-month low as PM May faces her cabinet ministers today in a last effort to convince them to support her Brexit deal. MP Rees-Mogg says he will not be backing her Withdrawal Agreement Bill, saying it is a “very bad deal.” The pound remains the worst-performing currency in the G10 this month. PM May is also expected to update her cabinet on the progress of cross-party talks with the Labour party which ended last week.

Note: May’s Conservatives are expected to experience a defeat of “historic proportions” at this week’s EU parliamentary elections on May 23.

Down-under, the Reserve Bank of Australia (RBA) minutes overnight revealed a softening in language with outlook “less favorable” with an easing policy in the next six-months. RBA Governor Lowe said the “board will consider the case for a rate cut in June.” AUD is -0.39% lower at A$0.6880.

TRY (-0.31% at $6.0455) is weaker after the CBoT lowered the swap market lira interest rate and opened a repo auction for the first time in a fortnight, reversing a policy tightening step it had taken to support the currency.

5. U.S/China need to reverse course in trade row to help economy

According to a report by the OECD this morning, economic growth in China and the U.S could be -0.2-0.3% lower on average by 2021 and 2022 if the “two countries do not row back on tit-for-tat tariffs” in their dispute that has dampened the global economic outlook.

In its biannual Economic Outlook, the OECD said that “the global economy would grow by only +3.2% this year as growth in trade flows is nearly halved this year to only +2.1%.”

That would be the slowest pace of global economic growth in three years and was down marginally from their last forecast in March for growth of +3.3%.

However, they expect the world economy “should fare slightly better next year with a growth rate of +3.4%, but only if the U.S and China pull back from tariff hikes announced this month.”

Forex heatmap

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

EUR/USD – Euro edges lower, markets brace for soft eurozone consumer confidence

EUR/USD has posted slight losses on Tuesday. Currently, the pair is trading at 1.1148, down 0.16% on the day. On the release front, there are no major events for a second successive day. The eurozone releases consumer confidence and the U.S. posts existing home sales.

Voters in all 28 members of the European Union will head to the polls for a 4-day election, beginning on Thursday, to elect members to the European Parliament. Election turnout has been on the decline, with only 43% of eligible voters casting a vote in 2014. Key issues included the economic slowdown, the migrant crisis and the rise in Euroskpeticism. Euro-skeptics increased their representation in parliament from 12% to 25% in the last election, and with the dramatic increase in strength of populist parties, this trend could well continue. A strong showing by parties with an anti-EU agenda could weaken the euro. As well, the outcome of the vote could have an impact on the choice of the new head of the ECB, as Mario Draghi steps down in October, after an eight-year term.

The eurozone remains mired in a slowdown, and the German locomotive has also lost a step. Still, there was positive news in Germany and the eurozone last week, as GDP and inflation headed upwards. German Preliminary GDP improved to 0.4% in the first quarter, after a flat zero reading in Q4 of 2018. In the eurozone, Flash GDP also climbed to 0.4% in the first quarter, up from 0.2% in Q4. On the inflation front, inflation indicators impressed, with sharp gains in April. Final CPI climbed 1.7%, matching the forecast. This was up sharply from 0.8% in March. Final Core CPI rose 1.3%, edging above the estimate of 1.2%. This marked the strongest gain since March 2013. The ECB recently stated that it had no plans to raise interest rates prior to the spring of 2020, but if GDP and inflation numbers continue to improve, the ECB could raise rates earlier than this timeline.

RBA’s Lowe caps Aussie’s election rally

The empire strikes back?

EUR/USD Fundamentals

Tuesday (May 21)

  • 10:00 Eurozone Consumer Confidence. Estimate -8
  • 10:00 US Existing Home Sales. Estimate 5.35M
  • 10:45 US FOMC Member Evans Speaks
  • 12:00 US FOMC Member Rosengren Speaks

Wednesday (May 22)

  • 14:00 US FOMC Meeting Minutes

*All release times are DST

*Key events are in bold

EUR/USD for Tuesday, May 21, 2019

EUR/USD for May 21 at 5:50 DST

Open: 1.1166 High: 1.1172 Low: 1.1142 Close: 1.1148

EUR/USD Technical

EUR/USD was mostly flat in the Asian session and has edged lower in European trade

  • 1.1120 is a weak support level
  • 1.1212 is the next resistance line
  • Current range: 1.1120 to 1.1212

Further levels in both directions:

  • Below: 1.1120, 1.1046 and 1.0950
  • Above: 1.1212, 1.1300, 1.1434 and 1.1553

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

RBA’s Lowe caps Aussie’s election rally

 

RBA’s Lowe says June rate cut under consideration

Coming on the back of the election victory by the Conservative coalition which promised tax cuts which could eventually flow through to the local economy, some were expecting RBA’s Lowe to tone down the need for further rate cuts in his speech in Brisbane today. That wasn’t the case, as he commented that the recent data makes it less likely that the labour market would surprise to the upside. While the global situation looks brighter, and he expects growth to strengthen later in the year, the board will consider the case for a rate cut at the June meeting, as slow wages growth and an unemployment above 5% limit inflation pressures.

AUD/USD slipped into the red for the day after his speech, falling to an intraday low of 0.6888 after hitting 0.6929 earlier while AUD/JPY fell from 76.28 to 75.96.

 

AUD/USD Daily Chart

Source: OANDA fxTrade

 

Election gains proved to be temporary

AUD/USD rallied 1.0% yesterday after it emerged that the Conservative coalition was victorious in the weekend election. That was the biggest one-day gain in 5-1/2 weeks and snapped a three-day losing streak. The Aussie had been under pressure from a shift in the perceived interest rate outlook at the RBA and the escalating tariff spat between the US and China.

The Aussie was looking to extend those gains today until both the minutes of the RBA meeting on May 7 were released and the RBA Governor spoke. The minutes highlighted discussions about the labour market and how a rate cut might be appropriate IF there was no further improvement in the labour market, given the recent weak Australian inflation data. These themes were continued in Lowe’s speech and the June meeting now becomes a “live” meeting, with rates markets now pricing in a near 70% chance of a 25bps rate cut compared with 57% yesterday.

 

The empire strikes back?

 

Waiting for China’s response

The only reaction from China to the US move to blacklist China’s Huawei has so far only been verbal in nature. China’s envoy to the EU labeled the actions as “wrong behavior” which will produce a “necessary response” on Monday while at a regular news briefing in Beijing yesterday, China’s Foreign Ministry spokesman Lu Kang said to “wait and see” for what countermeasures China would adopt.

Equity markets appeared to take a breather from the two-day sell-off and posted moderate gains in Asia this morning. The US indices were up between 0.32% and 0.51%, the Japan225 index gained 0.71% while the Australia200 index rose 0.53% to be within yesterday’s highs, which were the highest since December 2007.

 

Australia200 Monthly Chart

Source: OANDA fxTrade

 

All quiet on the European front

The European data calendar is almost bare, with only the UK’s CBI industrial trends survey on tap. The US session features existing home sales for April, which are seen rebounding to +2.6% m/m from March’s disappointing 4.9% decline. Speeches from Fed’s Evans and Rosengren complete the day.

 

The full MarketPulse data calendar can be viewed at https://www.marketpulse.com/economic-events/

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Daily Markets Broadcast 2019-05-21

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The empire strikes back?

Prepared by Jeff Halley, Senior Market Analyst

 

The empire strikes back?

Trade tensions reasserted their dark cloud over markets last night with the effect of the US Government Huawei ban rippling through technology stocks in particular. Investors marked down technology and semiconductor stocks not only on the prospect of lost sales to the Chinese telecom giant but also because these sectors may be the first in the firing line for any Chinese retaliatory measures. The spillover was also felt in the energy markets where concerns over global growth overwhelmed the initial rally sparked by OPEC+’s intentions to keep production tight.

The US-China trade war is in danger of assuming Brexit-like characteristics – long and drawn out with a series of false dawns, but with no discernible progress made after a lot of emotional noise. China has been remarkably quiet on the retaliation front, but I suspect that won’t last for long now. When it does come, its effect on markets could be more powerful initially than recent US measures as the world’s attention has been on America’s punch combinations and not its opponents.

US treasuries, Japanese JGBs and German bunds may remain the favoured safe harbours for investors, with flows continuing into US dollars, Japanese yen (JPY) and Swiss francs (CHF). Some things never go out of fashion and in times of trouble, you can always rely on the classics.

The performance of European and North American stock markets overnight will most likely snuff out the feel-good election rallies we saw in India and Australia yesterday, also weighing on regional markets. A very quiet day data-wise means the street will have plenty of time to ponder trade-war scenarios and their implications for the global economy. The answers won’t be good.

FX

The US dollar was mostly unchanged against the major currencies overnight with the action contained to equity markets. As the US ratchets up the pressure yet again on China, regional currencies may feel the heat today in the absence of any heavyweight Asian data releases. With its high correlation to China, the Australian dollar (AUD) may struggle to hold onto its post-election gains above 0.6900.

Equities

The S&P fell 0.70%, the Dow Jones dropped 0.30% and the tech-heavy Nasdaq plummeted 1.50% as the ramifications of the Huawei ban surged through the markets. The price action in the technology and semiconductor sub-indices was even uglier, the feeling being that US technology companies will be on the front line of any retaliatory measures by China.

The results should be predictable for Asian stock markets today. The Australian ASX and Japan Nikkei are already trading slightly in the red and Asia will probably be a sea of red this morning as regional markets open. Any salvos from China on the trade war front could deepen the malaise.

Oil

It was a game of two halves for energy markets overnight. Both Brent Crude and WTI rose strongly post the OPEC+ weekend meeting that reaffirmed production cuts. The rally soon spluttered though as a dig into the Saudi Oil Ministers comments, which highlight the fragile nature of the global economy, saw sentiment swing.

Global growth concerns saw Brent Crude turn and fall 0.20% to USD72.00 a barrel while WTI maintained some gains, rising 0.60% to USD63.10 a barrel. The divergence is likely a function of the outperformance of the US economy vis-a-vis the rest of the world.

Unless we see a surprise headline or two from the Middle East, Asia will likely continue on a similar theme and be inclined to sell rallies. That could accelerate on any retaliatory announcements from China.

Gold

Gold continues to doggy paddle furiously and is clearly not going to sink without a fight, fighting off an initial sell-down and swimming its way back to the surface, finishing unchanged at USD1,278.00 an ounce. The price action remains unimpressive with the yellow metal struggling to find any safe-haven benefit from the global economic tensions of recent times. The rise in cryptocurrencies over the same period may give some insight into where those flows are now going.

Asia is likely to be happy to sell rallies above USD1,280.00 today in keeping with that theme. The USD1,265.00 region remains critical longer-term technical support.

 

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stocks sink as geopolitical anxiety grows; Big gains for Bitcoin & Oil (WTI only)

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The Japanese yen and Swiss franc rallied against their major trading partners in early trade as anxiety from the latest escalation in the trade war saw the prospects of the trade deal fall deeper into the summer.  Safe-havens gave back most of their gains and commodity currencies recovered some of their losses after lunch.  The latest decision from White House to block US companies from buying foreign-made telecommunications equipment from Huawei will likely see strong retaliation from China.  Google, Intel, Qualcomm, Xilinx, Broadcom, and Infineon all froze supplies of critical software and components to the giant Chinese telco and tech stocks are down sharply today.  The potential response from China could be an Apple ban and that would reverberate across all technology stocks.  US Stocks closed lower with the Nasdaq leading the way with a 1.46% decline.

Fed Speak – Standard comments from Clarida, Bullard, Harker, Bostic and Williams; Powell tonight

Brexit – One last stab for May    

Oil – Higher on expected continuation of OPEC + cuts

Gold – Limited gains despite strong safe-haven session

Bitcoin – $8,000 remains key

Fed

Fed watchers heard from five members of the Federal Reserve but gain little insight to what would be the next move with interest rates.  Many market participants are waiting to see the Fed deliver a big shift that will have them join the bond markets in signaling a rate cut will be in the near future.  Federal Reserve Vice Chairman Richard Clarida noted that unemployment in the US may be able to decline further without triggering excessive inflation.  The unemployment rate in April dropped to 3.6%, a 49-year low and the strength of the labor market has made it difficult for the Fed to offer further accommodation.

The Fed’s Bullard, a dove and voter, stated he would consider pushing for a rate cut if core inflation were persistently low.  The Fed’s preferred index for inflation was at 1.6% for the year ending in March, just below the Fed’s 2% target.

Federal Reserve Bank of Atlanta President Raphael Bostic provided no new insights, noting that the scales for the next move, a hike or a cut, are equally likely.  He added there are a lot of risks out there and if the economy weakens, a rate cut might be appropriate.

Federal Reserve Bank of Philadelphia President Patrick Harker advocated against policy rules being followed robotically.  He is not a voter this year and did not have much to say on the economy or outlook on policy.

The Fed’s Williams, a voter, spoke at an event in New York.  He added the Fed wants to sustain this expansion.

The bond markets are still pricing in a rate cut as the next move and as this trade war drags on the data-dependent Fed will have an easy choice in cutting rates.  The question is not will they deliver a shift, but when.  Fed Powell speaks tonight and on Wednesday we will get the release of the FOMC meeting minutes.

Brexit

Prime Minister May is revising her latest Brexit deal to appease Labour, which would have new proposals to uphold EU standards of workers’ rights and environmental protection.  A tighter customs relationship will do little to win over members who are requiring a confirmatory referendum.

While May has been extremely resilient throughout the entire Brexit period, it appears her time is coming to an end.  Brexit will most likely have a new face and current bookmaker’s favorite is Boris Johnson  Regardless of who wins, it appears Brexit will go on much longer and that is why the British pound will struggle to muster up any significant gains.

Oil

Crude prices rose as constructive production cut talk from OPEC nations and allies outweighed global growth concern fallout from the intensification of the trade war.   Over the weekend talks from Jeddah showed OPEC + members, excluding Russia, who did their best not give any clear signal, are on board to continuing production cuts throughout the rest of year, albeit if conditions warrant it.

Geopolitical risks remain plentiful and for the time being that will provide support on any trade war selloffs we see.  Until we see spare capacity exceed output at risk, crude should be supported.

The OPEC + meeting over the weekend did not yield any surprises, with the most important comments coming from Russia, the most important non-OPEC partner in the coalition, hinting they could reduce production cuts if the market needs more crude oil.

The base case is for OPEC and its partners to announce an extension of production cuts, especially if global growth concerns grow.  Russian could decide to argue they do not want to take part with further cuts, or they might just say they will cut production, but just no comply.

Gold

Gold prices rose slightly as the US-China trade war dealt another blow to global economy.  The Huawei story is reverberating across many markets and this could be the beginning of talks deteriorating further. The next step is likely to be the China’s response, which could deliver a major risk-off move for equities and other risk assets.  Gold bulls are trying to stabilize their market, but if gold can’t recapture $1,300 in the short-run, especially with all the demand for safey,  we could see downside momentum target last year’s lows.

Bitcoin

Bitcoin’s wild ride continues as bullish momentum returned and nearly tested the $8,300 level.  Monday’s 10% gain recovered most of the Friday selloff which bottomed out at $6,331 level.  The largest cryptocurrency by market value is up almost 50% in May, mainly on progress entering mainstream commerce.  The $8,000 mark is proving to be key for the Bitcoin and if we see consecutive daily closes above there, we could see the $10,000 level eyed.  To the downside, $6,500 is major support.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏

Ed Moya

Ed Moya