AUD/USD – Aussie rebounds after surprise election win for PM Morrison

AUD/USD continues to lose ground this week. Currently, the pair is trading at 0.6911, up 0.62% on the day. On the release front, there are no data releases out of the U.S. or Australia. Later on Monday, the RBA releases the minutes of the policy meeting earlier this month. On Tuesday, the U.S. posts existing home sales.

Australian employment numbers were mixed last week. The economy created 28.4 thousand jobs in April, marking a 3-month high and crushing the estimate of 15.2 thousand. However, the unemployment rate climbed to 5.2%, higher than the estimate of 5.0%. This is the highest level since August. Meanwhile, wage growth has remained fairly steady. Wage price index remained pegged at 0.5% for a second straight quarter. The key indicator has posted gains of 0.5% or 0.6% since the last quarter of 2016.

The Australian general election was a shocker, as Prime Minister Scott Morrison’s conservatives had been widely expected to lose to the center-left Liberals. Morrison had trailed badly in the polls throughout the campaign, but came from behind in stunning fashion to pull off the victory. The markets reacted favorably to the election results, and AUD/USD climbed as high as 1.0% on Monday. The pair is coming off a dismal week, falling 1.9%. This marked its sharpest decline since early February.

Federal Reserve Chair Jerome Powell will speak at an event on Monday, and there are a dozen Fed speakers at various venues during the week. Still, investors don’t expect to hear anything new from the Fed, which has said that the next rate move could be in either direction. The markets have priced in a rate cut later this year, and some analysts are predicting a second rate cut before 2020. This could take dampen enthusiasm for the strong U.S. dollar, as rate cuts would make the greenback less appealing to investors.

Australian & Indian Election results provide risk-on flows on mixed Asian open

AUD/USD Fundamentals

Monday (May 20)

  • 13:05 US FOMC Member Clarida Speaks
  • 19:00 US Federal Reserve Chair Powell Speaks
  • 21:30 RBA Monetary Policy Meeting Minutes

Tuesday (May 21)

  • 10:00 US Existing Home Sales. Estimate 5.35M

*All release times are DST

* Key events are in bold

AUD/USD for Monday, May 20, 2019

Open: 0.6868 High: 0.6934 Low: 0.6868 Close: 0.6911

AUD/USD Technical

AUD/USD posted sharp gain in the Asian session. The pair edged higher in European trade but then retracted. AUD/USD has posted small losses early in the North American session.

  • 0.6825 is providing support
  • 0.6968 is the next resistance line
  • Current range: 0.6825 to 0.6968

Further levels in both directions:

  • Below: 0.6825, 0.6744 and 0.6686
  • Above: 0.6968, 0.7085, 0.7190 and 0.7240

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.

Five Fed Speakers offer little insight on next move

Fed watchers heard from four members of the Federal Reserve but gain little insight to what would be the next move.  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 later this week we will get the release of the FOMC meeting minutes.

Treasury yields advance slightly ahead of Powell’s comments and the FOMC minutes.  The 10-year yield is up 2.3 basis points to 2.414%

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

Gold steadies as equities dip; focus turns to Fed minutes

Gold steadied on Monday after recovering slightly from a more than two-week low hit earlier in the session, as equity markets fell ahead of the U.S. Federal Reserve’s release of minutes from its last meeting.

Spot gold inched up 0.1% to $1,278.41 per ounc, having touched its lowest since May 3 at $1,273.22.

U.S. gold futures settled $1.50 higher at $1,282.90.

“With equities trading lower, gold is expected to trade a little higher going into the Fed minutes on expectations that there is no immediate rate increase coming for the rest of the year,” said Bob Haberkorn, senior market strategist at RJO Futures.

Investors shifted focus to the Fed minutes due on Wednesday, which is expected to provide insights into the May 1 central bank meeting in which policymakers decided to keep interest rates steady and signaled little appetite to adjust them any time soon.

Gold tends to appreciate on expectations of lower interest rates, which reduce the opportunity cost of holding non-yielding bullion.

Global stocks took a hit as concerns mounted about an escalating fallout from a U.S. crackdown on China’s Huawei Technologies Co Ltd, intensifying a prolonged trade war between the world’s two biggest economics.

The greenback limited bullion’s appeal as the dollar index held near a two-week high. Last week the index posted the biggest weekly rise since early March, supported by robust U.S. housing data and a report pointing to lower unemployment.

“We have equities trading lower with all the geo-political news out there, yet gold can’t sustain any rally. There seems to be a flight to safety into the dollar because of the better economic data coming out of the U.S.,” Haberkorn said.

While gold is a safe store of value during times of uncertainty, investors are preferring the dollar, as they did last year during the U.S.-China trade spat.

Iran was served a new warning by U.S. President Donald Trump, who tweeted that if the country wanted to fight, that would be Iran’s “official end.”

On the technical side, ”$1,265 is now a critical support that must hold. A daily close below that region implies a much deeper correction could be imminent,” OANDA analyst Jeffrey Halley said in a note.

Among other metals, silver was up 0.5% at $14.47 an ounce, having touched a more than five-month low at $14.33.

Platinum edged 0.1% lower at $812.40 per ounce, while palladium rose 1.5% to $1,329.90.

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

Tesla Falls as Analyst Says Company Facing ‘Code-Red Situation’

Bloomberg

Tesla Inc. shares plunged below $200 for the first time in more than two years on concerns the carmaker faces a “Kilimanjaro-like uphill climb” to hit profitability goals in the second half of the year.

In a note Sunday, Wedbush analyst Dan Ives described the electric-car maker’s predicament as a “code red situation” and cut his price target on the stock to $230 from $275. Ives slashed his target from $365 just last month.

Once among the most bullish analysts covering Tesla, Ives said he has “major concerns around the trajectory of Tesla’s growth prospects and underlying demand on Model 3 in the U.S. over the coming quarters.”

Tesla shares fell as much as 7.5% to $195.25 and were trading at $200.68 as of 11:30 a.m. Monday in New York. The stock closed at the lowest level in almost 2 1/2 years on Friday after Musk called for a “hardcore” review of all the company’s expenses and an analyst warned of potentially severe fallout from a fatal crash involving Autopilot.
Tesla delivered just 63,000 cars in the first quarter but expects to deliver 90,000 to 100,000 cars in the second quarter, and 360,000 to 400,000 for the year. Ives said hitting the full-year target is going to be a “Herculean task” and sees 340,000 to 355,000 as a more likely scenario.

Representatives for Tesla didn’t immediately respond to requests for comment.

Tesla’s 5.3% bonds due 2025 now yield about 8.9%, according to Trace, well above the average yield for a B-rated company. The bonds have trailed the broader Bloomberg Barclays Single B U.S. High Yield Index this year by around 500 basis points, according to Bloomberg Intelligence analyst Joel Levington.

“There’s little in the form of favorable credit catalysts to turn momentum around in the near term,” Levington said in a report Monday. The bond price dropped below 83 cents on the dollar for the first time on an intraday basis, making the security the biggest loser in the high-yield market Monday, according to Trace.

Tesla Chief Executive Officer Elon Musk recently told employees in an email that he and Chief Financial Officer Zachary Kirkhorn will personally scrutinize expenditures following a worse-than-expected first-quarter loss. After having to pay off a $920 million convertible bond with cash in March, another $566 million is due in November.

When drumming up interest for a stock and debt offering earlier this month, Musk pitched investors on a future of autonomous robotaxis as the key to Tesla becoming a $500 billion company. Its market capitalization is now less than $36 billion, trailing General Motors Co. and Ford Motor Co.

If Tesla is unable to earn profit in the second half of the year, the company may need to raise another $1 billion to $2 billion of capital, Ives said in an interview with Bloomberg Television.

“With a code red situation at Tesla, Musk & Co. are expanding into insurance, robotaxis, and other sci-fi projects/endeavors when the company instead should be laser-focused on shoring up core demand for Model 3 and simplifying its business model and expense structure,” Ives wrote in his report.

Bloomberg

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

USD/JPY – Japanese yen subdued at 110, GDP beats forecast

USD/JPY is unchanged in the Monday. In the North American session, the pair is trading at 109.98, up 0.01% on the day. The week kicked off with Japanese Preliminary GDP for Q1, which came in at 0.5%. This easily beat the estimate of -0.1%. Final GDP in Q4 also posted a gain of 0.4%. There are no data releases out of the U.S. On Tuesday, the  U.S. releases existing home sales, while the Japan will post Core Machinery Orders and trade balance.

U.S. numbers impressed late in the week, and the positive news was spread across the economy. The Philly Fed Manufacturing Index jumped to 16.6, up from 8.5 a month earlier. Unemployment claims dropped to 212 thousand, marking a 4-week high. The week ended with a sizzling release from UoM Consumer Sentiment, which climbed to 102.4, its highest level in 15 years.

Federal Reserve Chair Jerome Powell will speak at an event on Monday, and there are a dozen Fed speakers at various venues during the week. Still, investors don’t expect to hear anything new from the Fed, which has said that the next rate move could be in either direction. The markets have priced in a rate cut later this year, and some analysts are predicting a second rate cut before 2020. This could take dampen enthusiasm for the strong U.S. dollar, as rate cuts would make the greenback less appealing to investors

Australian & Indian Election results provide risk-on flows on mixed Asian open

Risk Aversion Dominates as Huawei Situation Intensifies

USD/JPY Fundamentals

Sunday (May 19)

  • 19:50 Japanese Preliminary GDP. Estimate -0.1%. Actual 0.5%
  • 19:50 Japanese Preliminary GDP Price Index. Estimate 0.2%. Actual 0.2%

Monday (May 20)

  • 13:05 US FOMC Member Clarida Speaks
  • 19:00 US Federal Reserve Chair Powell Speaks

Tuesday (May 21)

  • 10:00 US Existing Home Sales. Estimate 5.35M
  • 19:50 Japanese Core Machinery Orders. Estimate 0.0%
  • 19:50 Japanese Trade Balance. Estimate -0.12T

*All release times are DST

*Key events are in bold

USD/JPY for Monday, May 20, 2019

USD/JPY May 15 at 11:40 DST

Open: 109.97 High: 110.00 Low: 109.93 Close: 109.98

USD/JPY Technical

USD/JPY posted slight gains in Asian trade. The pair edged lower in the European session and is showing limited movement in North American trade

  • 109.35 is providing support
  • 110.40 is the next resistance line
  • Current range: 109.35 to 110.40

Further levels in both directions:

  • Below: 109.35, 108.70, 108.10 and 107.50
  • Above: 110.40, 111.15 and 112.40

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.

Oil higher as supply risks outweigh growth concerns for now

Constructive banter from OPEC nations are to be expected leading up to the next key meeting in June.  The outcome of the Jeddah talks shows that OPEC + members are on board to continuing production cuts throughout the rest of year, albeit if conditions warrant it.  Uncertainty on both the global demand front and stockpiles from Iran Venezuela and Libya will likely keep things volatile and possibly see oil-producing nations punt the 176th extraordinary meeting again, from June to July.  Saudi Arabia does not want a repeat from last year, when too many barrels came back to the market.

Geopolitics will remain key for oil and while the focus early this week lies with global growth concerns from an escalating trading war between China and the US, short-term differentials between spare capacity and output at risk should keep prices somewhat 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.
The base case is slowly becoming OPEC and its partners will 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 could just not comply.

Choppy conditions remain in place for crude traders, with upside relying on geopolitical events driving shocks to supplies.

West Texas Intermediate crude could be vulnerable to a move towards $60 a barrel, but if the bullish move continues, $69.50 could be major resistance.  The Canadian dollar is slightly firmer on the day against both the euro and US dollar.

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

FTSE starts week with losses as U.S. blacklists Huawei

FTSE has posted considerable losses in the Monday session. In the North American session, the pair is at 7,309, down 0.54% on the day. Risk appetite has dropped on Monday after President Trump issued an executive order to blacklist Huawei, which is the second largest cell-phone maker in the world. On the release front, British CB Leading Index posted a gain of 0.5%, after a decline of 0.4% in the previous release. On Tuesday, BoE Governor Mark Carney testifies about inflation and the economic outlook before the Treasury Committee. The U.K. will release CBI Industrial Order Expectations.

The turmoil surrounding Brexit and global trade tensions are making fund managers increasingly pessimistic over the pound. This boosted the blue-chip FTSE last week close to 1.0%, as investors search for attractive alternatives to the pound. Major financial services companies are reducing their exposure to the pound, with some going further and shorting the currency.

Parliament is expected to vote yet again on a Brexit withdrawal agreement, after three previous attempts by the May government ended in failure. It’s difficult to see why the result will be any different this time around, as Conservative lawmakers remain deeply divided on Brexit. May tried to enlist the help of Labor leader Jeremy Corbyn, but these talks have been unproductive. The next Brexit vote in parliament will be May’s last chance before the summer recess, and her days as prime minister may be numbered.

Federal Reserve Chair Jerome Powell will speak at an event on Monday, and there are a dozen Fed speakers at various venues during the week. Still, investors don’t expect to hear anything new from the Fed, which has said that the next rate move could be in either direction. The markets have priced in a rate cut later this year, and some analysts are predicting a second rate cut before 2020. This could take dampen enthusiasm for the strong U.S. dollar, as rate cuts would make the greenback less appealing to investors.

Australian & Indian Election results provide risk-on flows on mixed Asian open

Risk Aversion Dominates as Huawei Situation Intensifies

Economic Calendar

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)

  • 4:30 British Inflation Report Hearings
  • 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

FTSE, Monday, May 20 at 11:05 DST

Previous Close: 7,348 Open: 7,349 High: 7,360 Low: 7,267 Close: 7,309

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.

GBP/USD – British pound steadies after dismal week

GBP/USD is showing little movement on Monday. In the North American session, the pair is trading at 1.2740, up 0.20% on the day. On the release front, British CB Leading Index posted a gain of 0.5%, after a decline of 0.4% in the previous release. There are no U.S. data events on the schedule. On Tuesday, BoE Governor Mark Carney testifies about inflation and the economic outlook before the Treasury Committee. The U.K. will release CBI Industrial Order Expectations and the U.S. posts existing home sales.

U.S. numbers impressed late in the week, and the positive news was spread across the economy. The Philly Fed Manufacturing Index jumped to 16.6, up from 8.5 a month earlier. Unemployment claims dropped to 212 thousand, marking a 4-week high. The week ended with a sizzling release from UoM Consumer Sentiment, which climbed to 102.4, its highest level in 15 years.

Brexit has been on the backburner for several weeks, but will be back on center stage in early June. Parliament is expected to vote yet again on a Brexit withdrawal agreement, after three previous attempts by the May government ended in failure. It’s difficult to see why the result will be any different this time around, as Conservative lawmakers remain deeply divided on Brexit. May tried to enlist the help of Labor leader Jeremy Corbyn, but these talks have been unproductive. The next Brexit vote in parliament will be May’s last chance before the summer recess, and her days as prime minister may be numbered.

Australian & Indian Election results provide risk-on flows on mixed Asian open

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)

  • 4:30 British Inflation Report Hearings
  • 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 Monday, May 20, 2019

GBP/USD May 20 at 10:40 DST

Open: 1.2719 High: 1.2757 Low: 1.2719 Close: 1.2740

GBP/USD Technical

GBP/USD posted small gains in the Asian session. In European trade, the pair edged higher but then gave up some of these gains. The pair is showing limited movement in the North American session

  • 1.2723 is a weak support level
  • 1.2841 is the next resistance line
  • Current range: 1.2723 to 1.2841

Further levels in both directions:

  • Below: 1.2723, 1.2615 and 1.2477
  • Above: 1.2841, 1.2910, 1.3000 and 1.3070

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.

Risk Aversion Dominates as Huawei Situation Intensifies

The Chinese-US trade war intensified on Monday as Huawei’s suppliers stopped doing business with the telco giant. The fallout could really accelerate risk off flows as China’s response is expected to be to suspend business with all suppliers who agreed to halt supplying Huawei.

European indexes are all selling off on the trade war angst and the US markets are all expected poised to open down, with the Nasdaq being hit the hardest. Safe-haven flows are driving the Japanese yen and Swiss franc higher, while gold prices struggle to breakout higher. Oil prices were supported by this weekend’s comments from Jeddah.

Five Key Stories for Monday:

Huawei/Iran – Tech stock blood bath

Oil – OPEC hints at keeping cuts

Fed Speak – Powell, Clarida and Broadbent may hint at dovish tilt

Aussie and Indian elections – Markets like election outcomes

Gold and Bitcoin – Cryptos behaving more like a safe-haven

Huawei/Iran

Risk aversion flows were the dominant theme to start the trading week as the trade war between the two largest economies saw the ripple effect on the US restrictions that were put on Huawei. The White House decision on Huawei is expected to see a Chinese response and this could drive US stocks below last week’s low. According to Bloomberg, Google, Intel, Qualcomm, Xilinx, Broadcom, and Infineon all froze supplies of critical software and components to the giant Chinese telco.

The trade war is getting uglier and even if we do see some framework agreement reached by the middle of summer, the damage will be done to global growth figures for the second quarter. All current trade talks appear to be halted and we could see continued selling until we a de-escalation with this protectionist showdown.

The other wildcard for risk aversion is the growing tensions between Iran and the US. Over the weekend, Iran fired a rocked into the heavily fortified Green Zone in Baghdad, just 0.3 miles away from the US embassy. President Trump tweeted, “If Iran wants to fight, that will be the official end of Iran. Never threaten the United States again!” Iran’s foreign minister Zarif dismissed Trump’s taunts and we should not be surprised to see Iran step down from its recent behavior. If we see continued military threats by Iran, we could see this escalate into war, something markets have not really considered to price in.

Oil

Crude prices initially rose sharply after both OPEC + indicated they want to stick to the current plan of production cuts for the rest of the year and tensions remained elevated between the US and Iran. The Saudi-led coalition discussed production levels, the Iran situation, and how much further they could drive down inventory levels. Saudi’s Al-Falih stated that Saudi Arabia will take an additional month of observing production cuts in July to observe the situation, hoping their colleagues will do the same.

The physical market remains tight, OPEC + compliance was last at 168%, but global growth demand is being dealt a blow by global trade wars and it will be hard to imagine other countries will be content with Saudi Arabia taking up all the loss oil from Iran. The path for oil is still likely higher due to supply risks from Iran, Venezuela and Libya, but we will likely see volatile moves until both the trade war is resolved and oil markets price in the risk that the OPEC + could fall apart if Russia decides to ease production cuts.

Fed Speak

Most analysts expect Fed speakers this week to stay consistent and maintain the stance that interest rates remain on hold. Recent developments however, with the trade war and global weakness, could allow the Fed to deliver a fresh dovish tilt that could allow them to catch up to the market. Fed Fund futures are currently only showing a 9.5% chance of a rate cut at the June 19th meeting and a coin flip at the September 18th meeting.

Markets will closely listen to Vice Chair Clarida’s (1:05pm ET) and Fed Chair Powell’s (7:00pm) comments today. The data dependent Fed may need to see trade talks collapse, before cutting but with the recent actions taking place with the Huawei situation, growth will be weaker globally, and the data will be much weaker in the second quarter thus warranting a cut at the end of summer.

Elections AU/IN

Morrison and Modi victories are delivering a nice boost to Australian and Indian stock markets.

The bigger surprise was from Australia. Election analysts got another election wrong, mirroring the surprise we saw with Brexit and Trump, as pollsters were calling for Morrison’s right-leaning coalition to lose for months. Australian’s chose to ignore turmoil that saw Morrison’s coalition go through three prime ministers in six years. His promise for lower energy costs, help for first-time homeowners and criticism of Labor’s initiatives and the effects on the budget appeared enough to win over voters. Tax relief is expected to be implemented early as next month. Markets are loving Australian assets today, and the A$ could have a key bottom in place if we do not see a complete catastrophic outcome from the US/China trade war.

India’s exit polls saw Prime Minister Narendra Modi’s set for a decisive victory in India’s general election. An impressive victory during a time when unemployment is off the charts and the rural sector continues to struggle. It appears, Modi will now be able to move forward on infrastructure investments, assistance for farmers and policies that appeal to Hindu nationalists. The rupee is 0.7% firmer against the dollar, but off its session highs.

Gold/Bitcoin

Gold prices are slightly firmer despite an overall risk off start to the trading week. Disinflationary conditions persist and until the Fed confirms what the markets are heavily pricing in, we could see the yellow metal struggle.

Bitcoin is up 8.5%, in early volatile trade displaying better safe-haven appeal than gold prices. The bubbly asset has had an amazing rally in recent weeks, but many are calling the recent moves similar to what we saw in 2017, before things collapsed. Momentum could see Bitcoin hit $10,000 before collapsing.

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

Dow futures sink more than 100 points as investors focus on Huawei fallout

U.S. stock index futures fell on Monday as concerns about an intensifying fallout from a U.S. crackdown on Huawei weighed on market sentiment.

At around 7:15 a.m. ET, Dow Jones Industrial Average futures indicated were down 127 points, indicating a drop of 109 points at the open. S&P 500 and Nasdaq 100 futures traded lower as well.

Alphabet’s Google has suspended business with Huawei that involves transferring hardware, software and other technical services. The U.S. search giant’s decision follows President Donald Trump’s administration adding Huawei to a list that required U.S. companies get a license to do business with the Chinese company. Bloomberg News also reported that companies like Intel, Qualcomm and Broadcom will not supply Huawei until further notice.

Chipmaker stocks fell broadly in the premarket. Nvidia, Applied Materials, Advanced Micro Devices and Lam Research all traded down more than 2%. Shares of Micron Technology fell 3.6%.

Apple added to the market’s decline, sliding more than 2%. Boeing shares declined 0.9%.

The moves by the U.S. government and tech companies come as China and the U.S. try to strike a deal that would end the countries’ ongoing trade war. The U.S. hiked tariffs on $200 billion worth of Chinese goods earlier this month, and China retaliated by raising levies on $60 billion worth of U.S. imports.

CNBC reported on Friday that U.S.-China trade talks have stalled. Sources told CNBC’s Kayla Tausche that scheduling discussions had not happened as the U.S. increases pressure on Chinese telecom companies. Meanwhile, the South China Morning Post said that China was in no rush to continue trade talks.

Trade fears have hit stocks hard this month. The S&P 500 was down 2.9% for May through Friday’s close while the Dow and Nasdaq had both lost more than 3%.

However, a U.S. decision to remove tariffs on Canadian and Mexican steel and aluminum provided some relief for investors. Canada’s Foreign Minister Chrystia Freeland said Ottawa would move quickly to ratify the new North American trade pact.

CNBC

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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