The trade standoff between the US and China dominated the headlines last week. Huawei was the focal point of the trade dispute ,even though it was largely a negative week, sentiment improved towards the end as Donald Trump said a deal is still possible, provided there are tough restrictions in relation to the Chinese tech company. Mr Trump left the door open to the possibility of progress being made, amid a slightly frosty relationship.
On Friday, European stocks ended higher, and they managed to claw back some of the week’s earlier losses. Over in the US, the tech-focused NASDAQ 100 had a mediocre performance, and the lack of enthusiasm in relation to tech stocks suggests investors are still a little nervous about the Huawei situation.
Commodities we also hurt last week on the back of the US-China trade tussle as copper, platinum and oil fell over fears for demand. It was a different story for gold and silver as some investors sought out safe haven assets.
The London market was closed yesterday as it was a bank holiday, and the US markets remained closed at it was Memorial Day. It was a quiet day in Continental Europe yesterday as was two of the major players were out of commission, so today should see a pickup in activity.
Yesterday, the DAX and the CAC 40 posted modest gains, but it was the Italian banking sector that stood out for all the wrong reasons. It was reported that Brussels are considering punishing the Italian government for failing to curb its debt level. The announcement pushed up Italian government bond yields, and the full impact is likely to be felt today when more traders are back to work.
The European Parliament elections over the weekend showed a rise in the number of anit-EU politician winning seats. The Brexit Party topped the poll in the UK, and the Nationally Rally, formerly the National Front did well in France, and the Lega Party are projected to have won in Italy. Brussels will now comprise of a sizeable number of policymakers who oppose the European project, and that is likely to slow down the decision making capability, not to mention, its ability to handle the UK planned departure from the bloc.
Overnight in Asia, stocks traded higher as dealers are hopeful the US and Japan will strike a trade deal. President Trump said there is a ‘tremendous’ trade imbalance between the two nations, and he is keen to rebalance the relationship. Yesterday, Mr Trump claimed the US are not ready to make a deal with China, and he reminded Beijing that tariffs could go up.
At the back end of last week, Theresa May declared her intention to step down as Prime Minister, and the race for the premiership has kicked-off. Brexit backing Boris Johnson has his eyes on 10 Downing Street, and even though he is very unpopular in certain circles of the Conservative Party, the Tories won’t select a Remainer as their leader again.
The German GfK consumer climate report will be announced at 7am (UK time) and economists are expecting a reading of 10.5, which would be an improvement on the 10.4 in the previous report. Import prices will be announced at the same time, and economists are anticipating 0.5%.
At 2pm (UK time), the US Case Schiller house price index report will be announced, and on a monthly basis traders are anticipating 0.5%. US consumer confidence will be announced at 3pm (UK time) and the consensus estimate is 130.0, and that would be an improvement on April’s 129.2.
EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might target the 1.1000 area. Resistance might be found at 1.1322.
GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might encounter support at the 1.2600 region. The 200-day moving average at 1.2956, might act as resistance.
EUR/GBP – has rebounded for over two weeks, and if it holds above 0.8800, it might bring 0.8939 into play. A move to the downside might bring the 50-day moving average at 0.8635 into play.
USD/JPY – while it holds below the 100-day moving average at 110.55, its outlook should remain bearish, and support might be found at 108.50. A rally might target the 112.00 region.
FTSE 100 is expected to open 30 points higher at 7,307
DAX is expected to open 26 points higher at 12,097
CAC 40 is expected to open 10 points higher at 5,346
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