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Forums > Commercial Zone > Third Party Market Analytics > LCG: FINANCIAL MARKET RESEARCH AND ANALYSIS
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08 Jun 2018 4:22 AM

Risk Aversion Increases on G7 Uncertainty

Given the quiet economic calendar today, the continuing trade spat between the US its closest allies will attract a good deal of attention as the G7 summit begins. The broader US market posted its first loss in 5 days as the recent equity rally, and more specifically tech rally, faltered, whilst investors started to show unease over the potential climate at the G7 Summit. Souring investor sentiment resulted in a softer session for Asia and indicates a weaker start for Europe on the open

 

There is little doubt that trade will top the agenda at the Friday and Saturday Summit in Canada. Given Trump’s trade levies on US allies and his general unpredictability, uncertainty could continue to form a central pillar to trading as we move through the summit and into the weekend. Trump has already had a twitter spat with France’s President Macron prior to the event, which doesn’t bode well. However, the big question for traders is unlikely to focus on Trump’s actions, but rather the level of hostility and aggression that the other leaders will show?

 

Up to now, the markets were sanguine regarding increasing global trade tensions, as traders assumed Trump’s aggressive stance is just another wild negotiating tactic. It’s already clear that no one wants to play ball with Trump, with those involved already promising tit for tat retaliation. However, the problem we envisage here is that the collective group of leaders could use this as an opportunity to make their point clearer, turning the event into a reason to take risk off the table. Uncertainty as to how these talks will pan out is unnerving investors sending them out of riskier assets such as stocks, and into traditional safe havens such as treasuries and the yen.

 

Bonds Drive FX market

Risk aversion ahead of today’s G7 Summit, in addition to broader concerns in Europe over the unwinding of the ECB stimulus programme has seen an uplift inflows into US treasuries, which pulled treasury yields sharply lower. Bond market moves are driving FX trading dragging the dollar to 3-week lows. Meanwhile, the euro extended its gains on optimism that the ECB would be unwinding the QE programme before the end of the year. This makes a July ’19 rake hike a real possibility. Continued uncertainty and risk aversion could see the dollar fall lower on bond market moves, potentially lifting the euro higher.

 

Risk Events Across the New Week

There are several significant risk events lined up, which are making traders uneasy. First up, the G7 Summit, which will be followed by political and policy events next week, such as the FOMC, ECB meeting and the US – North Korea Summit. Giving the potential impact on the markets that each of these events individually could cause, that having them lined up one after the other will make for a volatile week, particularly for the dollar.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

11 Jun 2018 4:21 AM

Trade Tensions & Geopolitical Concerns Are Going Nowhere Soon

With trade at the top of the agenda, expectations for a smooth running G7 Summit were low even before the meeting started. A twitter spat between Trump and Macron and Trump and Trudeau set the scene for the souring relations that were to follow. Trump leaving the summit early, back tracking from the painstakingly negotiated G7 communique and threatening further trade tariffs on the US’s closest allies ensured a risk off start to trading as the new week began.

 

Asian stocks were shaky after the G7, or more appropriately G6 +1, Summit fanned fears that a global trade war is inevitable as long as Trump continues to play the protectionist card. Traditional safe havens such as the Japanese yen and gold climbed sharply higher, whilst investors were moving out of the dollar and risker assets, sending US futures lower and pointing to a mixed start in Europe. If one thing is certain following these talks, trade tensions are going nowhere soon.

 

NAFTA Looking More Elusive

The Canadian dollar is a notable loser following the new low in US – Canadian trading relations. USD/CAD gapped higher on the open on Sunday hitting $1.2999, up from a close the previous week at $1.2922, as investors acknowledge that NAFTA negotiations will almost certainly have a much harder edge to them following Trump’s early departure from the G7 Summit and castigating tweets aimed at Canadian Prime Minister Trudeau. With no high impacting Canadian data due until Thursday, we expect the pair to remain vulnerable to further trade headlines and the dollar to be in the driving seat.

 

With plenty for dollar traders to be keeping an eye on this week, attention will start to shift towards the US - North Korea Summit on Tuesday. Whilst both sides are seeking to manage expectations, the fiery tempers of each leader means that this meeting is by no means a done deal.

 

Italy Intends to Stay in the Euro

The euro was seen extending gains from the previous week, capitalising on the weaker dollar whilst benefitting as the new Italian finance minister Giovanni Tria sought to reassure the markets by confirming that he backs staying in the euro and intends to bring down Italian debt.

 

After hitting a 10-month low just 10 days ago, the euro is once again better bid. Headwinds such as Italy exiting the euro and the ECB quantitative easing programme are evaporating allowing optimism towards the euro to return with force. EUR/USD pushed over $1.18 as the markets opened on Sunday and as traders look ahead to the ECB meeting on Thursday, where it is widely believed that the central bank will plan to end the QE programme in December after a 3-month taper. Obviously with expectations running high, risk is stacked to the downside with suggestions of a 6 month taper likely to pull the common currency lower.

 

Mixed Bag for UK Data?

After a quiet UK economic calendar for the second half of last week, pound traders will be pleased to see UK economic releases pick up again this week. Whilst today’s manufacturing and industrial production figures are expected to show a mixed bag, the NIESR GDP data is expected to show that economic growth picked up. Should this be the case, combined with the weaker dollar we could finally see the pound make an approach towards $1.35.

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

12 Jun 2018 4:20 AM

Sentiment Lifted by Trump – Kim Jong Un Upbeat Meeting

Traders moved on from the tense G7 Summit with surprising ease on Monday, as attention swiftly turned to the US – North Korea Summit, which started overnight. Despite the prospect of worsening relations between the US and its closest allies and increased trade tensions following the strained G7 meeting, US indices closed higher as, lifted by sentiment ahead of the historic meeting between President Trump and Kim Jong Un.

The Dow closed marginally higher, whilst the S&P and the Nasdaq ended 0.1% higher and 0.2% higher respectively.

 

Dollar hits 4 session high on strong sentiment

The dollar has been a notable gainer overnight, strengthening against its peers as the historic meeting went ahead. Trump had been managing expectations by setting the bar low moving towards the summit and the fact that the tone was upbeat (and a vast improvement on the G7) lifted the dollar to a four-session high in the Asian session.

So far this is sentiment alone which is lifting the buck and creating a risk on vibe, should we actually see this meeting produce something more tangible then risk appetite could increase further. Traditional safe haven, the Japanese yen dropped 0.2% versus the dollar, whilst riskier assets such as stocks received a boost, with Asian equity indices higher overnight and European bourses pointing to a positive start on the bell. Sentiment aside, this meeting will actually mean very little for global growth, so the positive market reactions could be short-lived.

Dollar traders are in for a busy day, with geopolitics setting the tone to early trade, whilst US inflation data will bring potential Fed action later in the week back into focus. Core CPI is expected to have ticked higher in May to 2.2%, up from 2.1% pointing to increased price pressures for yet another month. A strong reading could fuel speculation of a more hawkish Fed, as policy makers meet for the FOMC, boosting the appeal of the dollar further before the rate decision on Thursday.

 

Tough start to the week for GBP, labour data to help?

The pound has had a tough start to an event packed week. With an unexpectedly poor manufacturing reading, investors will be looking towards UK labour data with a little more optimism. Whilst unemployment is expected to remain at 4.2%, earnings growth is forecast to remain constant at 2.9% in the 3 months to April. Inflation in April was 2.5%, meaning that for a third straight month consumer should have enjoyed an easing of pressure on their purses, an encouraging sign for domestic inflation.

The number of unemployment claimants will also be released for May and is worth keeping an eye on. Last month the number of claimants jumped, spooking investors as this is often considered a sign for a loosening labour market down the road. Another weak reading here could see the pound target $1.33.

 

Key Brexit vote expected to pass, just

Today’s data come on top of Brexit developments, which are likely to be high on the agenda for pound traders. PM Theresa May has attempted to appeal to Conservative rebels to support her as the Brexit Bill returns to the Commons for a key vote. Whilst the Lords have made amendments opting towards a softer Brexit, the pound would usually be expected to rally at the slightest hint of a softer break. However, a vote in that direction would throw up more concerns over May’s ability to keep hold of power, potentially overshadowing any softer Brexit tone. The general consensus is she may have done just enough to scrape through this time around.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

13 Jun 2018 4:19 AM

Trading Muted as Central Bank Bonanza Begins

The previous session was less about Trump – Kim Jong Un and more about Brexit. Theresa May avoided humiliation in the commons vote over amendments to the Brexit Bill. The promise that MP’s will get a meaningful vote later in the year on the terms of the Brexit deal lifted the pound to a day’s high of $1.3425; however, the strength of the mighty dollar, as US inflation printed in line at 2.8% and as investors eye a rate hike by the Fed, meant the rally was short lived.

 

Investors broadly shrugged off the historic, first Trump – Kim Jong Un meeting, with US markets muted ahead of the Fed’s rate decision due later today. Asian markets are giving a mixed performance which is expected to carry across to Europe on the open.

 

The big week for the pound continues with the FTSE expected to remain vulnerable to swings in sterling. With the Brexit vote now in the rear-view mirror attention will fall first to UK inflation figures before the FOMC rate decision later.

 

Inflation; Another Disappointment for Pound Traders?

UK data this week has raised concerns once again over the health of the UK economy, dimming the prospects of a BoE rate hike in August. Inflation in May is expected to remain constant at 2.4%, whilst core inflation, which removes more volatile items such as food and fuel, is also expected to remain constant at 2.1%. Given the surprisingly soft manufacturing numbers early in the week, plus wage growth unexpectedly ticking lower, a lacklustre, even if constant inflation reading seems more like another reason for the central bank not to hike rather than a compelling reason to lift interest rates. Disappointment could see the pound target $1.33 particularly in light of the strong US inflation and almost certain rate rise.

 

Fed to Hike, but 3 or 4 Questions Remain

The Federal Reserve is widely expected to raise interest rates by 25 basis points later today. The announcement will come this evening in addition to the Fed’s quarterly projections and will be followed by a press conference by Fed Chair Jerome Powell. The rate hike is as good as completely priced into the market. Traders will be looking closely for clues as to whether the Fed intends to hike once or twice more across the year.

 

At the last meeting in March the Fed continued with the message of three hikes across the year. However, US economic data has picked up considerably since then, with inflation (CPI) now at a 6 year high of 2.8%, well above the Fed’s 2% target.

 

Should the Fed lift its projection to 4 hikes instead of three (via the dot plot) we expect to see the dollar continue its charge higher. Meanwhile, should the Fed stay pat with 3 rates through the year, we would expect to see the dollar give back some of its recent gains. Markets are currently pricing in a 46% chance of 4 rate hikes across the year, meaning traders are fairly equally divided. Yet given the backdrop of troubled global trade, the Fed could be keen to hold off a little longer. CPI might be at 2.8% but PCE the Fed’s preferred measure of inflation, is still at just 1.8%, meaning time is still on the Fed's side.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

14 Jun 2018 4:14 AM

Wall Street Ends Lower on More Hawkish Fed

Whilst the Fed’s second rate rise this year was broadly expected, the central bank’s increasingly hawkish tone came as a bit more of a surprise, sending US equities and treasuries lower, whilst also causing a brief spike higher in the dollar.  The US economic outlook has improved with the Fed expecting a continued fall in unemployment to 3.5% and a rise in inflation (PCE) to 2%. The upbeat outlook from the Fed, along with the bank’s more aggressive stance, of 4 hikes rather than 3 previously expected across the year, raised concerns over higher borrowing costs, which dragged the markets lower. These same concerns, coupled with further trade war talk from the White House saw a mixed performance from Asia, whilst Europe is also set for a softer start.

 

Euro Climbs Ahead of ECB Taper Talk

After ECB Chief economist and known dove Peter Praet confirmed that the ECB will be discussing the winding down of QE at this month’s meeting, euro investors cheered. The euro has recovered from the Italian political turmoil earlier this month which saw it sink to $1.1511 and with some further encouragement from the ECB, $1.20 could be back in sight. Whilst no definitive timetable is expected until July, market expectations are fairly broad leaving little room for disappointment. As long as the program comes to a close by the end of the year euro traders should remain bullish. However, with trade war fears escalating, Italian political risk still present and a slowdown of momentum in the eurozone economy, the ECB’s position is notably weaker than it was at the start of the year.  Still the fact that Praet made these comments suggests that the doves on the ECB are happy to move forward and the euro has been climbing steadily on the same assumption.

 

UK Retail Sales to Lift Sterling towards $1.35?

After yet another disappointing week for U.K. economic data, traders will be eyeing today’s retail sales with some caution. Expectations are for a jump in sales of 2.5% year on year in May, up from 1.5% in April. May saw some particularly warm weather hit the isles, which could have easily lured shoppers to the high street, furthermore wage growth has been outpacing inflation for three months now, so consumers should slowly be starting to feel a little less pressure on their purses; a surprise to the upside could be on the cards. A strong print could go some way to lifting the probability for a rate hike in August, which after this week’s data so far looks limited at best.

 

After a week of disappointing data which has raised serious doubts over the BoE’s ability to hike this summer, combined with a more hawkish Fed, has seen the pound continue to languish in a tight range. A dose of optimism today could see the pound target $1.35 for the first time in 3 weeks as the hike is returned to the table.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

15 Jun 2018 4:12 AM

Will Resurgent Trade War Fears Hit the Markets as Trump Decides What Next?

Compared to Thursday’s European equity rally, Wall Street’s moves looked muted. Whilst the broader US market moved 0.25% higher and the Nasdaq secured another record high, the Dow dropped 0.1% as investors are still wary that the steeper pace of rate hikes laid out by the Fed could dampen economic growth.

 

The Fed’s upbeat assessment of the US economy on Wednesday was followed by better than expected retail sales data, as if on cue. US retail sales grew twice as fast as expected and at the quickest rate in 6 months bringing more optimism towards the US economy. However, its unlikely that the dollar’s impressive rally is chiefly down to retail sales; historically this data release and the dollar aren’t so strongly correlated. Instead, the surge in the dollar was mostly thanks to the ECB inspired slide in the euro.

 

ECB Inspired Euro Selloff Continues

The euro extended its fall in the Asian session, hitting a two-week low of $1.1558 as traders continued digesting the ECB’s no rate rises until the second half of 2019 message. The comments clipped the wings of those euro traders that had been getting ahead of themselves with the idea of a late Spring / early summer hike.

 

After the almost 2% loss suffered by the euro in the previous session investors will be looking nervously ahead to inflation data today. With expectations at a lacklustre 1.1%, this could be the final straw to boot the euro lower into the weekend. That said resurgent trade war fears could also be the euro’s saving grace.

 

Chinese Trade Tariffs to Begin?

An announcement by the White House today will pull global trade squarely back in view as Trump decides whether to levy trade tariffs on $50 billion worth of Chinese imports. Whilst Asian markets are trading higher, US futures have dipped marginally. The markets are relatively sanguine moving towards the announcement, suggesting that the traders still do not believe that this will turn into a serious trade war or, alternatively, have had the story come around so many times over the past few weeks that they have simply moved on.

 

Dollar Maintains Rally

The dollar continues to reign strong, maintaining its highs amongst its peers. The subsequent weaker pound and euro gave a strong boost to European equities in the previous session and are seen lifting the European futures to a positive start on Friday. The dollar has fallen 0.1% against the Japanese in what could be argued as increased flows into safe havens, but Gold flat and struggling to move above $1300 raises doubts over the safe havens flow theory.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

18 Jun 2018 4:07 AM

Markets Broadly Lower as They Await Trump’s Next Move

Asian markets and most equity futures have started the week off on the back foot. US – Sino trade wars are once again a pivotal theme. China responding in kind, on Friday, to Trumps’ $50 billion worth of tariffs on Chinese imports, by hitting US commodities with import pledges is unnerving investors. The tit for tat response is putting the two powers a step closer to an all-out global trade war. Investors will now be watching carefully for Trump’s response with further measures expected. The overriding concern here is how this is going to escalate with potential fallout being a slowdown in world trade and a drop-in business sentiment. Up until now, we have seen investors escape into US tech stocks but that may be starting to run its course. European bourses are pointing to a negative start whilst US futures are also in the red.

 

Trade war fears & OPEC meeting concerns drag oil lower

Oil is seen extending Friday’s losses as the new week kicks off. Crude trades below $64 at fresh 9-week lows.  Oil prices have been under notable pressure amid growing expectations that Saudi Arabia and Russia will make moves to ease the current supply cut limits at the OPEC meeting in Vienna on Friday. After a year of oil production cuts, the more recent US sanctions on Iran and the political crisis slowing production in Venezuela to an almost standstill, there is a growing consensus between the Saudi’s and the Russians that a “gradual” increase in production should be deemed necessary. This is unnerving oil traders, hence the sell-off. The position is not so clear-cut given that other OPEC members, such as Iran and Iraq are against raising production, fearing it could trigger renewed supply issues. Let’s not forget that US shale production is still a growing risk in the eyes of OPEC.

 

UK House prices hit record high

UK housebuilders could be in for a lift on the open as house asking prices hit a record high for the third straight month, according to Rightmove. Despite political uncertainty and stretched affordability house prices continued increasing in May, mainly thanks to declining stock availability in the North of Britain, overshadowing less activity in the South, where house prices in London fell for the 10th straight month. With looming Brexit uncertainty, those who can wait are doing just that.

 

German coalition division hurts euro & Dax

The euro is once again receiving a pummelling from the mighty dollar. After tumbling 1.3% across the previous week, the euro slid lower versus the dollar in trading on Sunday amid an increasingly apparent divergence on monetary policy. Furthermore, as trade war fears and more hawkish Fed speakers hitting the airwaves this week could play to the dollar’s advantage, the growing political tension and division in Germany’s coalition over migration is likely to add to not just the euro’s woes, keeping it firmly out of favour, but also the Dax, which is lagging behind its European peers, ahead of the open.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

19 Jun 2018 4:00 AM

Trade Concerns Intensify as US & China Enter Round Two

The escalating US -Sino trade spat continues to attract the bulk of investor attention as it moves towards round two. Following an initial levy on $50 billion worth of Chinese imports, which prompted a retaliatory measure from China; round two has seen Trump look to up the ante to a 10% tariff on $200 billion of Chinese imports, in the clearest sign yet that these tit for tat measures will continue to escalate until there are some serious economic consequences on the individual countries and to global sentiment.

 

Safe Haven Yen Rallies in Asia

As the US and China head straight towards a full-on trade war flows out of riskier assets are on the rise. US equity indices put in a mixed performance overnight, closing off session lows; however, US futures have taken another step lower since the close as escalating trade concerns continue to dampen risk appetite. Weak sentiment spread to Asian market overnight, which were putting in a mixed performance, whilst Europe is also seen extending its trade war inspired losses from the previous day.

 

Moves into safe havens have increased with the Japanese yen trading heavily and jumping 0.6% versus the dollar, breaking through the 200-day MA at 110.22 and then through the psychological level at 110.00 The Swiss franc was also better bid, pushing higher versus the dollar.

 

Sterling Struggles as May Under Pressure

The pound is still unable to focus on the Bank of England MPC rate decision on Thursday, as Brexit developments keep grabbing the headlines. The pound sunk heavily in the previous session as pressure on Theresa May mounted and the House of Lords defeated the governments’ “meaningful vote” amendment, instead supporting a rival proposal which gives Parliament more influence, sending the Brexit Bill back the Commons for a vote on Wednesday.

 

This will not only test May’s ability to steer a minority government, but also the pounds buoyancy as pro-EU rebels promise they can collapse the government if their demands aren’t met. Theresa May showing signs of weakness and an inability to control her party wouldn’t bode well for the future as several other pieces of legislation are still needed in order to prepare for Brexit. The pound is picking up slightly as we move into Tuesday, we expect trading to remain relatively muted given the lack of UK economic data and until after the vote on Wednesday.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

20 Jun 2018 10:48 AM

OPEC Meeting: Will oil production rise and by how much?

On June 22nd and 23rd, energy ministers from the OPEC (Organization of the Petroleum Exporting Countries) and ministers from countries outside the organisation will meet in Vienna to discuss future oil policy. 

Analysts and oil traders are speculating to what extent this meeting will affect oil prices. The meeting will address many issues especially rising U.S. oil output, supply disruptions in countries such as Venezuela, Libya, Angola, and Nigeria, and American sanctions in Iran. 

Saudi Arabia, the largest and most influential OPEC oil producer, will need to keep in mind more than just the current and future oil situation. It is important for them to take into account their relationships with Russia and the U.S. – not to mention to deal with increasing tensions with Iraq and Iran. 

What action might be taken? 

The main issue will be to decide whether to increase oil production, or to maintain the supply level as it currently is. Saudi Arabia and Russia have said they are ready to increase the level of oil production. This would enable them to maintain market share and appease the White House.

Most of the other countries – especially poorer ones – wish to leave the oil production at current levels, which, with supply shortages from many large oil producers, may lead to upward pressure on oil prices, helping them meet their national budget spending requirements.

Given this increase in demand, OPEC may very well decide to raise its production quotas to meet these increasing energy needs. A decision to remove any kind of production limit seems unlikely. Any kind of increase in oil production would need to be “limited and gradual” in order to avoid causing a negative price shock. 

Short-term market reaction

Crude prices have dropped more than 10% from the highs in May, as the market priced in signals from Saudi Arabia and Russia that they were willing to lift output curbs.

The decision by how much to raise total oil output will be the key determinant for oil price direction on Friday. Russia had earlier touted raising output by 1.5M bpd. Rumours that OPEC might compromise by raising production by 600,000 per day (approx. half way between 1.5M and nothing) was well received by the market. 

We think raising output by 600,000 bpd or less would create a positive price move in the short term for oil prices, whereas anything close to 1M bpd would see a negative price reaction. 

Longer-term effects

Since November 2016, OPEC’s and other large oil producers’ oil production limit has helped to reduce the global oil glut and support oil prices. After falling to about $30 a barrel in early 2016, oil prices have recently reached around $80 (Brent) and $72 (West Texas Intermediate) a barrel – their highest levels in 2 years. 

In addition, recent developments such as Chinese tariffs on U.S. goods (including crude and gasoline) are also putting upward pressure on oil prices. Now that the global economy is stronger, the demand for fossil-fuel energy is increasing, with the International Energy Agency expecting demand to grow by 1.4M bpd in 2019. 

Still, as long as OPEC does increase output, we see an eventual larger pullback toward $70 per barrel for Brent crude.

Equities and Forex

Naturally, decisions from OPEC influence not only oil prices, but also companies within the overall Oil & Gas sector, who extract, refine and sell oil-based products – not to mention related sectors such as agriculture, transportation, and manufacturing. As the cost of extracting oil stays constant, lower oil prices put a strain on profitability, potentially leading to layoffs and a restriction on exploration and infrastructure projects. The swing in oil prices strongly affect economies heavily dependent on oil exports (such as Norway, Saudi Arabia and Canada) as well as their related currencies.

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.
21 Jun 2018 11:08 AM

Markets Bounce as News Wears Thin; Pound Nerves Show Ahead of May’s Showdown

US equities tumbled on the open and languished at lower levels across the session, as trade war fears lingered. The Dow dived 300 points in its 6th straight session of losses as the reality of a trade war sunk in. The S&P dropped 0.4% whilst the Nasdaq gave up 0.3%, both recovering from earlier 1% falls. Perhaps the most ironic part of Trump’s trade game is that he could end up doing a great deal of damage to US firms which look towards China for impressive sales.

 

The markets have been trading on the same piece of general trade war news for a while, as a result, selling exhaustion has started to set in. Asian markets are seen moving higher overnight and European bourses are also expected to push northwards on the open, although the gains are making up a fraction of what the losses totalled over the previous few sessions. Any fresh news of retaliation could see traders snatch risk back off the table quickly.

 

Dollar Remains Firm, For Now

The dollar is a standout winner from the escalating trade conflict, benefiting from its safe haven status. However, this flow could be short-lived if and when it becomes clear that Trump’s trade war is a direct threat to the stability and economic growth of the US economy.

 

May’s Crunch Vote in the Commons

Pound traders are preparing themselves for another perilous session as Theresa May is expected to face Conservatives rebels in a showdown in the Commons. The Brexit Bill returns to the lower house with both Tory rebels and Theresa May refusing to back down over giving Parliament more of a say should the UK leave the EU without a deal. It remains unclear whether May can pull this one out the bag and as a result, the pound is shifting nervously lower as we head towards the European open

The “meaningful vote” amendment is widely considered a backstop to prevent the UK from crashing out of the EU with no deal agreed. Ironically the Bill returns to the Commons to a backdrop of an increasing possibility of no deal being reached, particularly given that progress on Ireland is reportedly as good as non-existent.

 

Goodbye May, Goodbye the pound?

The big question going into the crunch vote is if May loses will it be the end of her and goodbye to the pound? Probably not. There will, of course, be a sterling sell-off and fury directed at May for her lack of vision and not bringing her MP’s with her. However, even the most ardent of Brexiters would have problems pushing Brexit legislation through with the minority government. With 9 months to go to Brexit, it’s too late to switch captain. Therefore, whilst the vote will attract significant attention we don’t see an embarrassing loss as a motive to push the pound sub $1.30 – that could come from an excessively dovish BoE on Thursday.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.



21 Jun 2018 11:09 AM

A Pause in Trade Threats See the Markets Calm

Risk settled in the previous session as a lull in the China-US trade spat enabled traders to shift their attention to other events, including the appearance of key central bankers in Sintra. The rather undeserved calm across the overnight session saw the S&P close 0.1% higher, whilst the FAANG’s led the Nasdaq to a new record high. In contrast, the Dow, gapped higher on the open for the first session in four, before dropping to close lower for the 7th straight session, its worst run since early 2017. 

 

The lack of fresh threats from Trump’s administration has been enough to see a rapid easing in risk aversion, however, the reality is that fundamentals remain under pressure. Furthermore, we have been reminded that this is not just a US – Sino war, with the European Union announcing $2.8 billion worth of trade tariffs in response to US levies announced on metals back in May. Yet even with China and Europe retaliating the markets are happy to continue pushing higher; Asian gaining ground overnight and Europe in line for another positive start.

 

Will BoE Hint Towards August Rise?

The pound’s rally inspired by Theresa May’s win in Parliament as she faced down Tory rebels was short-lived, with the pound once again grinding lower across the US session. The pound continues to trade around 6-month lows as we look ahead to a potentially volatile day with two main risk events. Firstly, the BoE rate decision; whilst it is easy to get lost in trader talk and tariffs, central banks are still a key pillar and critical theme to keep an eye on. Whilst the BoE are broadly expected to keep the rate on hold, traders will be pouring over the minutes for any further clues as to the likelihood of an August hike. With data since the May meeting decidedly mixed and Brexit risk increasing, the risks appear tilted to the downside. Even so, we are expecting the central bank to adopt a wait and see approach to keep the door open.

 

Mansion House Speech

Should the BoE continue with wait and see rhetoric, Mark Carney and Chancellor Philip Hammond are in danger of overshadowing the BoE rate decision with the Mansion House Speech. Brexit has been a key theme for sterling across the week as the Brexit Bill ping-ponged between Houses. Philip Hammond is expected to stick to this theme, discussing life after Brexit but in relation to global trade and developing fresh global final partnerships. Whilst his tone may be surprisingly optimistic for such a hard-line Remainer, it’s doubtful whether it will have real market moving substance. Meanwhile, Carney could set speculation moving forward for a rate hike this year, meaning he could do more than the BoE to move the pound.

 

Crude Higher as OPEC Meeting Comes into View

Crude will remain under the spotlight as we approach the OPEC meeting from Friday. With IEA claiming the oil glut which sent prices plunging in 2015/16 has now been resolved and the fact that OPEC is producing less than its self-imposed restriction, it’s hardly surprising that some OPEC members believe oil will be vulnerable to prices moving higher. Whilst Saudi Arabia and Russia are two key players strongly in favour of increasing output, Iran has been a noisy protestor.

 

The market appears to be expecting a gradual rise from OPEC and Russia, meaning should no agreement be reached then oil will surge higher.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

22 Jun 2018 6:11 AM

Trade Fears Linger; Uncertainty Ahead of OPEC Meeting Boosts Oil

Trade war fears were responsible for yet another losing session on the Dow overnight, much as they were responsible for losses around the globe. Yet for the Dow, this marked its eighth consecutive loss and whilst the losses themselves haven’t actually been that large, totalling around 3.5%, it’s the consistency of the losses which is slightly more alarming. The last time the Dow experienced a longer bear run was some 34 years ago, highlighting the usual nature of the market movement that we are seeing. Following the sell off on Wall Street, Asian markets saw mixed fortunes overnight, which is expected to spread to the European open where the FTSE pushing higher on the open, whilst the Dax I on the backfoot.

 

Keeping trade wars firmly in the limelight, the EU is set to implement its trade retaliation tomorrow with the start of levies on €2.8 billion worth of US imports, which Trump is unlikely to accept lying down. At the least we can expect a tweet, if not a fuller response from the US President, much in the same way he did with China, with a tit – for tat comeback not completely out of the realms of possibility.

 

PMIs Draw Attention Back to Calendar

Dollar weakness as trade war fears persisted enable the euro to rebound in the previous session, picking itself up from one-year lows. However, the rally has stalled around $1.16 as investors look ahead to PMI data this morning. Eurozone growth continues to experience a slowdown in momentum. Eurozone PMIs across the board are expected to reflect this slowdown in June, as they fall again compared to the previous month. Weaker than forecast PMI prints, combined with a Dovish Draghi at Sintra could prove too much for the euro, particularly if the US PMIs give reason to cheer, $1.15 could once again be a reality heading into the weekend.

Given that the US PMI’s have recently be climbing higher, a surprise to the upside is a real possibility which could jolt the dollar bulls back into life after the buck moved lower on Thursday.

 

Oil 1% Higher Heading Ahead of OPEC Meeting

Oil was trading 1% higher as investors looked ahead to the start of the OPEC plus meeting in Vienna. Expectations across the week have been that that producers will ease production cuts with the consensus increase now at 1 million bpd. However, Saudi Arabia and Russia, both strong supporters of the easing are being met with strong opposition from Iran, which is creating some uncertainty over whether a consensus can be achieved. The markets are aware that different countries have different requirements and different agendas, meaning a consensus at the meeting will be a challenge, uncertainty is prevailing right now which is lifting the price of oil over 1%. Should no agreement be reached, although unlikely, the piece of oil would lift. Should a gentle cut be agreed we expect oil to remain steady, with a large easing of production cuts leading to a sell off.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

25 Jun 2018 4:14 AM

Sinking Energy Prices & Fresh US Measures in US – Sino Trade War Hits Sentiment

Asian markets kicked the week off on the back foot, with futures markets across the globe following suit. A ramping up in tit for tat trade measures are sending shivers down the market, whilst lower energy prices are expected to pull oil majors lower.

After a 3.4% rally in oil helped the FTSE finish 1.2% higher on Friday, the 2% decline in the price of oil as the markets opened on Sunday is expected to drag on the share index, as trader’s price in the oil production increase agreed by the OPEC plus group in Vienna on Friday. With traders anticipating that the oil cartel would agree to boost production by less than 1 million barrels per day, if they were able to agree on anything at all, the price of oil rallied. However, as details of 1.8 million barrels per day increase were confirmed the price of oil has since dived.

Going into the meeting expectations were running high that there would be some agreement to raise oil production, with figures of 600,000 – 800,000 barrels per day extra being tossed around. The reality is that 1.8 million barrels per day issignificantly more than what the market was expecting, which explains the steep sell-off in oil as trading begins at the start of the new week. Expectations are that this level of increase will now push oil production back into surplus territory after being approximately -0.2 million barrels per day in deficit.

Brent and WTI were both trading lower, although Brent by noticeably more at -1.3% whilst WTI shed 0.6% in the Asian session.

 

May Under Pressure to Accelerate No Deal Brexit Plans

With the EU Summit starting on Thursday, Brexit will once again be in focus. Last week pound traders celebrated Theresa May facing down Tory rebels to prevent MP’s from having a meaningful vote should there be a no deal Brexit. Over the weekend, hard-line Brexiteers ramped up the pressure on Theresa May for a no deal plan. Progress on a Brexit deal has been alarmingly slow and with the clock ticking Brexiteers view this as the only way to ensure a good break from the Brussels. Any signs of a harder Brexit are expected to weigh on demand for the pound, particularly given the lack of high impacting economic data until later in the week, potentially bringing $1.31 back into target.

 

Another Week, Another Measure in the US-Sino trade war

The markets shrugged off Trump’s retaliation on Friday, threatening 20% tariffs on EU cars. In the latest escalations of the trade war, Trump has decided to take aim at Chinese investments. A draft series of restriction on inbound Chinese investments are due to be published later this week, in a move which could have great long-term consequences on the US – Sino economic relationship. Once again details remain very sketchy, with the scope of such a measure still under discussion. But, what’s clear it is now very difficult to get away from the fact that neither side has any intention of backing down in this game of economic “chicken”.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

26 Jun 2018 7:51 AM

Dead Cat Bounce in Europe As Trade War Fears Persist?

As it starts to dawn on the market that this is not just another Trump tactic and the US President is, in fact, serious about initiating a damaging global trade war with potentially catastrophic economic consequences, traders are jumping out of risky assets and fast. With deteriorating US – Sino relations quickly approaching a point of no return, Wall Street tumbled lower following the trend set earlier in the day in Europe.

 

Tech Stocks Hit

Tech stocks were the biggest decliners overnight, wiping out recent gains in the sector and sending the Nasdaq 2% lower, as investors reacted to Trumps plans to bar many Chinese companies from investing in US tech firms.  In a change of tactic, there is a chance that this latest move by Trump could pinpoint a new focus in this unfolding trade war, where we start to see both countries attack foreign investment, after moving on from trade tariffs.  The Dow dropped over 320 points on Monday, whilst S&P was also closed 1.3% lower.

Asia is seen taking its cue from the lower close in the US, plummeting in trading overnight. Any hopes of Trump backing down before the midterm elections seem pretty farfetched. If true, this feels like a medium-term bearish factor which has the potential to pull the markets effortlessly into correction territory.

Despite a lower US & Asian trading session, European markets are seen advancing on Tuesday. With no change to fundamentals, there is little hope that this anything more than a mere dead cat bounce.

 

US Consumer Confidence

The economic calendar is pretty quiet on both sides of the Atlantic, with the only high impacting release coming from US consumer confidence. Consumer confidence in the US hit an all-time high in April as Americans felt optimistic over the health of the jobs market and over their personal finances. Traders will be keen to see whether Americans still chose to shrug off headlines of trade wars and retaliation, opting to focus on more palpable domestic concerns such as unemployment and wage growth.

 

Has the dollar peaked?

The dollar has traded lower over the past four sessions as the risk off climate sends investors towards US bonds, dragging the yields lower and therefore taking some support away from the dollar. Add to this that traders are focusing increasingly on the damage that a trade war could do to the US economy and there is a strong possibility that the dollar may have already peaked. Any signs that the US consumer is starting to be affected by the looming trade war could drag the dollar lower.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

27 Jun 2018 4:07 AM

Rising Energy Stocks & Easing Trade War Fears to Lift Markets on the Open

Trading was noticeably calmer in the previous session compared to Monday, as investors continued to digest comments from US trade advisor Peter Navarro, whose insistence that the US was not looking to target Chinese investments in Trump’s trade war served as tonic to the jittery markets.

Silence on the trade war radio provided investors with breathing space and the opportunity to reassess the probability of the White House going after Chinese investments. The lack of headlines also enabled traders to switch their attention to other areas of the market, like the rallying price of oil, allowing Wall Street to finish in positive territory.

 

Oil Rallies on Supply Disruption

Oil was a central driving force behind the positive close on Wall Street overnight, amid reports that supply disruptions are expected to outweigh the impact of the recently agreed OPEC increase in production. An earlier pledge by Saudi Arabia to lift production to a new record was shrugged off by the markets, as the US pressed allies to cut Iranian oil imports to zero by early November. Oil charged over 2% higher on supply disruption fears pushing through $76 per barrel. Traders will now look towards oil inventory data later today, signs of a strong drawdown in addition to the supply disruption fears could be sufficient to lift oil back towards $80 per barrel.

The US energy sector added 1% in trading overnight, a similar boost could be in line for European energy shares on the open. European bourses look set to follow Wall Street higher, despite some softness in Asia overnight.

 

UK House Prices Set to Fall?

With the Nationwide housing data due, the housebuilders are expected to be under the spotlight on Wednesday. The sector has been hard hit over recent sessions following profit warnings from Countrywide Estate agents at the beginning of the week, and a warning on a softer outlook from Berkeley Group a week earlier, as rising Brexit uncertainty and sluggish wage growth dampen the housing market. Nationwide House price index is expected to slip to 1.7% year on year in June, down from 2.4% the previous month.

 

Financial Stability Report

Pound traders panicked following dovish comments from Ian McCafferty’s replacement, Jonathan Haskel in the previous session, sending the pound back to support at $1.32. A dove replacing a hawk will do little to help the prospects of another rate rise.

The pound could come under more pressure today, as focus turns to BoE Governor Mark Carney, as he delivers the BoE’s financial stability report. This report is being released amid growing trade tensions between US & China, with concerns growing that a softening of the Chinese economy could hurt the UK’s financial stability by more than originally thought.  Traders will be watching closely for Carney to shed further light on the situation.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.



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