Wall Street equities jumped to fresh all-time highs at this week’s open, following the encouraging Trump-Xi meeting on Saturday. But the trade truce between the US and China gave little respite to investors, as the US officials turned to Europe without losing time. The US Trade Representative’s office (USTR) added $4 billion worth of EU goods to the list of products that could be hit by the US tariffs on the back of a long-lasting subsidy quarrel between Boeing (NYSE:BA) and Airbus. A list of $21 billion worth of goods was already announced in April. Hence, the risk appetite remained limited during the rest of the US trading session. Weak economic data and Hong Kong protests further dampened the mood.
Asian equity markets opened flat on Tuesday, except for Hong Kong stocks. Hang Seng (+1.35%) popped at the open to catch up with Monday’s advance despite political worries.
The US stock futures stalled, as the FTSE futures (+0.34%) led advance boosted by the OPEC’s decision to prolong production cuts and the cheapening pound.
The FTSE 100 is expected to open 27 points higher at 7524p.
OPEC extends production cuts to March 2020
Oil traded sideways after OPEC announced to extend the production cuts for an additional nine months to March 2020. The decision is expected to be endorsed by OPEC’s allies at today’s meeting in Vienna, as Russia, the leading non-OPEC ally, has already agreed on the deal at the G20 summit.
WTI crude trades near its 200-day moving average ($58.75), Brent crude tests the $65 support as the prolonged period of the low-production regime has been fully factored in the market prices on the lead up to this week’s OPEC meeting.
Oil traders will now turn their attention to the economic data, as the weakening global activity and waning demand could again weigh on the sentiment and call for a downside correction in oil prices following the June rebound.
US dollar consolidates gains after G20 meeting, Euro-dollar reverses the trend
The US dollar index consolidated gains in Asia, after having rallied past its 200-day moving average (96.70) on Monday.
The AUDUSD shortly sold off to 0.6959, after the Reserve Bank of Australia (RBA) lowered its cash target rate by 25 basis point to 1% for the second consecutive month. The ASX 200 rose on RBA’s determination to support the employment market and household consumption. The market expects additional rate cuts from the RBA within the next year to overcome the negative influences of slowing China, its leading trade partner.
The sharp rise in the US dollar and weaker-than-expected Eurozone manufacturing PMI data sent the EURUSD below 1.1295, the 38.2% Fibonacci retracement on June rise, pointing at a short-term bearish trend reversal.
Due today, the Eurozone’s producer price index may hint at a steep decline from 2.6% y-o-y to 1.7% in May. Soft factory-gate prices could revive the low-inflation worries across the Euro area, bring the European Central Bank (ECB) doves back in charge and further weigh on the single currency. The activity in the Euro area’s sovereign bond markets suggests a solid 80% probability for a 10-basis-point cut in ECB’s deposit rate in September.
The EURGBP bounced lower from the 0.90-resistance, but the golden cross formation (50-day moving average crossing above the 200-day moving average) could support the euro-pound bulls as the UK’s political turmoil outweighs the European economic worries and the ECB doves.
Pound in bears’ hands
The pound continues sliding on the back of rising no-deal Brexit worries and disappointing economic data.
On Monday, the manufacturing PMI data revealed an unexpected rise in the pace of contraction in June. The construction and services PMI data are due today and Wednesday respectively. Any negative surprise in economic activity could further weigh on the pound sterling.
And buyers become progressively rare, as some 160’000 Conservative party members are preparing to receive their postal ballots between 6 and 8 July. Boris Johnson and Jeremy Hunt reveal their Brexit plans to convince Tories to vote for them before the final deadline of 21 July. Until then, the pound will likely remain in the hands of the bears given that the focus remains on the worse-case hard Brexit scenario by October 31st, as the country runs out patience following three years of fruitless negotiations with the EU. The GBPUSD 6-month risk reversals fell to the lowest levels since April, suggesting that investors are increasingly hedging against a further drop in the pound.
Opening Calls
FTSE to open 27 points higher at 7524
DAX to open 34 points higher at 12555
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