Trade tensions weighed on investor sentiment yesterday as the traders were worried about the stand-off between the US and China. Trader weren’t running for the hills as there wasn’t a major escalation in tensions, but the remarks from President Trump on Tuesday, that the trade deal has a long way to go has been hanging over markets since. Traders are acutely aware that the White House still might impose tariffs on $325 billion worth of Chinese imports.
The sell-off in stocks this month coincided with the beginning of the US reporting season, even though the results have been broadly positive. The fact the S&P 500 was moved above 3,000 encouraged some profit taking, and the bulk of the last leg of the rally was driven by update from Fed chief, Jerome Powell, when he spoke in front of US lawmakers last week. Mr Powell left the door open to lower interest rates, and that fuelled the rally that pushed stocks to record highs recently.
Stock markets in Asia rallied overnight as traders were hopeful the Fed would loose monetary policy later this month. Richard Clarida of the Fed, said the central bank shouldn’t wait until the economy cools before cutting rates.
Sterling had a positive run yesterday when as the EU’s Michel Barnier seemed to soften his stance in relation to Brexit, when he said an alternative solution to the Irish border situation might be operable. The race for Tory leader goes on and both Jeremey Hunt and Boris Johnson are keen to renegotiate the withdrawal agreement, and the remarks from Mr Barnier yesterday left some traders less fearful about a no deal Brexit.
The pound was also helped by the impressive UK retail sale figures. Last month, UK retail sales jumped by 1%, which was a big improvement on the -0.6% fall in May, and it comfortably topped the -0.3% forecast. Home improvements were a big driver in retail sales. It is possible home owners are waiting out the uncertainty of Brexit ,and doing-up their houses in the meantime.
The European Central Bank (ECB) said it will reassess its inflation target, and many traders took that as a sign it will cut its inflation target given the fact the current rate is a 1.3%, and the target is 2%. The ECB are worried the Fed will cut rates as it is likely to prop up the euro, and a softer single currency would be preferable to the ECB.
Oil saw an enormous amount of volatility in the past 24 hours. It sold-off severely yesterday after the Iranian regime requested that sanctions are lifted in exchange for the enhanced inspections of its nuclear programme. More recently, the US have destroyed an Iranian drone in the strait of Hormuz, and the energy market has jumped on the rising tensions.
German PPI will be posted at 7am (UK time) and dealers are anticipating a reading of 1.4%, which would be a huge drop off from 1.9%.
At 9.30am (UK time) the public sector net borrowing figure will be released economists are expecting the deficit to drop to £3.4 billion from £4.5 billion in May.
Canadian retail sales will be posted at 1.30pm (UK time) and economists are expecting a reading of 0.3%, which would be an improvement on the 0.1% registered in April. The reading that strips out auto sales is expected to be 0.4%
University of Michigan consumer sentiment reading will be announced at 3pm (UK time), and the consensus estimate is 98.5, and keep in mind the June figure was 98.2.
EUR/USD – has fallen back into the wider downtrend and a move back below 1.1200 might pave the way for the 1.1110 area to be retested. 1.1400 might act as resistance.
GBP/USD – has been driving lower since mid-March, and a break below the 1.2365 region, might bring 1.2109 into play. The 1.2600 area might act as resistance.
EUR/GBP – has rallied for over two months, and if it holds above 0.8872, it might bring 0.9116 into play. A move to the downside might bring the 200-day moving average at 0.8787 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 108.73.
FTSE 100 is expected to open 37 points higher at 7,530
DAX is expected to open 85 points higher at 12,312
CAC 40 is expected to open 37 points higher at 5,587
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