Overnight China released the latest trade figures. Exports jumped by 11.3% while economists were expecting an increase of 10%. Imports rose by 14.1%, and that compares to the 20.8% growth that economists were anticipating. It is impressive that exports topped forecasts given that US tariffs on Chinese steel and aluminium kicked in last month. The massive trade surplus that China has with the US is one of the reasons that President Trump instigated the trade spat, and dealers will be keeping an eye on developments.
Yesterday stocks bounced back as the fears regarding a trade war subsided. The absence of harsh words from the US and China encouraged traders to step into the market and snap up stocks. Investors are getting used to the pattern, whereby equity markets can recover after a big sell-off that was triggered on account of trade tensions. In keeping with recent trends, the US indices held up better than their European counterparts.
The S&P 500 hit its highest level since early March and the Nasdaq 100 hit an all-time high. Dealers believe the US is in a stronger position to weather the storm than the rest of the world, and that is why the US equity benchmarks are outperforming.
Steven Mnuchin, the US secretary of the Treasury, revealed that many of the trade talks with China have broken down, however, he confirmed that China is very important in cooperation with North Korea. These remarks suggest the US doesn’t want to be too aggressive with Beijing, which is also giving investors hope.
In the US, inflation and core inflation jumped to 2.9% and 2.3% respectively. The headline inflation rate is now at its highest since early 2012, while the core figure is at a level not seen since January 2017. The steady increase in demand could bring about two more rate hikes from the Federal Reserve this year. The minutes from the June Fed meeting were released earlier this month, and they cautioned that ‘heightened inflationary pressures’ could bring about an economic downturn.
Oil had a lacklustre session yesterday, which is concerning given how much it dropped on Wednesday. Fears of weaker future demand because of the US-China trade dispute, coupled with news of increased supply from Saudi Arabia, and plans for Libya to boost exports all contributed to the slump in price. Despite the relatively low price, demand was subdued.
Today at 8am (UK time), Spain will release the latest inflation figures, and economists are expecting an increase from 2.1% in May to 2.3% in June. Keep in mind that yesterday, French inflation held steady at 2.3% while the German rate dipped to 2.1% from 2.2%. Next week the eurozone will release the figures for the region, and the core number will give us an indication of actual demand in the currency bloc.
EUR/USD – has been edging higher since late June, and a break above the 1.1850 area could pave the way for 1.2000 being tested. A move below the 1.1510 region could put 1.1400 on the radar.
GBP/USD – has been in a downward trend since April, but it has been creeping higher recently. A move through 1.3315 could bring 1.3472 into play. If the wider bearish move continues it could target 1.3049.
EUR/GBP – has been in an upward trend since mid-April and if the bullish move continues it could target 0.8900. A pullback might find support at 0.8785 – the 100-day moving average, and a break below 0.8785 might bring 0.8725 into play.
USD/JPY – has been pushing higher since late-May and if it can hold above 111.39, it could pave the way for 113.57 to be targeted. A move to the downside might find support at 109.37 – 109.19 area.
FTSE 100 is expected to open 40 points higher at 7,691.
DAX is expected to open 63 points higher at 12,555
CAC 40 is expected to open 25 points higher at 5,430.
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