European and US stock markets drove higher yesterday on the back of the US-China trade talks that were held in Japan over the weekend. The meeting between the two sides was long long-awaited, and even though the trade standoff is still ongoing, some progress was made, and that was enough to trigger a wave of buying.
The two largest economies in the world decided not to impose extra tariffs on each other, and that was viewed as a win for the bulls. The Trump administration softened its stance in relation to the ban it imposed on US firms from doing business with Huawei, on the condition it doesn’t put national security at risk. The concession from Donald Trump shows he is willing to be flexible, but it is worth noting that many US tech giants were calling for a loosening of the restrictions.
To give some concessions to the US, Xi Jinping promised to ramp up China’s purchase of agricultural machinery from the US. Mr Trump wants to rebalance the trading relationship with China, so this is a step in the right direction, but the US still has major concerns about the protection of intellectual property, so the wider trade dispute is likely to drag on for some time.
Equity markets in Asia broadly traded higher overnight as the feel good factor post the Trump-Xi Jinping meeting is still doing the rounds. Mr Trump claimed the latest US-China trade talks have ‘started already’.
The US dollar index was given a boost too yesterday as the fear surrounding the state of the US economy has faded a little. One of the reasons dealers became so convinced the Fed will lower rates later this year was one account of the strained US-China trading relationship, and in light of the weekend’s events, the dollar bulls have re-emerged. The firmer greenback hurt gold, and coupled with the flight into riskier assets like stocks, the metal had a tough time yesterday.
Oil surged yesterday as major oil producers met to discuss production plans, and there was a lot of talk the about extending the existing production cuts by nine months. OPEC, who are predominately Middle Eastern based, will meet up with non-OPEC members today and look to finalise the coordinated production cuts.
Overnight, the Reserve Bank of Australia cut interest rates to 1%, a fresh all-time low, and this is the second month in a row the Australian Central Bank cut interest rates, which underlines who worried they are about the state of the economy, and or the housing market.
Spanish unemployment change is released at 8am (UK time), and economists are expecting a drop of 90,000.
At 9.30am (UK time), the UK construction PMI report will be released and traders are expecting the reading to improve from 48.6 in May to 49.3 in June. Keep in mind, yesterday the UK manufacturing PMI report dropped to 48 – the lowest since early 2013.
Eurozone PPI will be posted at 10am (UK time) and the reading is expected to cool to 1.7% from 2.6%. PPI is a good gauge of demand at the factory level, and if prices are falling for producers, they are likely to fall for consumers down the line. Continued weakness in CPI might prompt the European Central Bank to loosen monetary policy. The eurozone manufacturing figures yesterday were largely poor, as the Spanish, Italian and German sectors all incurred negative growth.
EUR/USD – has been largely pushing higher since late May, and a break above 1.1400 might bring 1.1448 into play. A move back below 1.1200 might pave the way for the 1.1110 area to be retested.
GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might encounter support at 1.2476 region. The 1.2800 area might act as resistance.
EUR/GBP – has rebounded for over one month, and if it holds above 0.8800, it might bring 0.9000 into play. A move to the downside might bring the 200-day moving average at 0.8782 into play.
USD/JPY – has been in a down trend since late April, and if the bearish move continues it might target the 106.00 mark. Resistance might be found at the 50-day moving average at 109.39.
FTSE 100 is expected to open 28 points higher at 7,525
DAX is expected to open 34 points higher at 12,555
CAC 40 is expected to open 18 points higher at 5,585
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