Macro economics

Analytics on 02/07/2019. Investor optimism abates, oil struggles for direction

European markets are only marginally higher on Tuesday as investors are digesting the news that Washington is looking to broaden tariffs on European products including chemicals, metals, whiskies and cheese over alleged subsidies to airplane maker Airbus SE. The Office of the U.S. Trade Representative added another 89 items to the list of products from the EU that could become subject to tariffs. The final list will take into account the report of the WTO Arbitrator on the appropriate level of countermeasures to be authorized by the WTO. The sentiment is also subdued after the reports by Chinese state media outlet Xinhua, citing a statement that the agreement to resume talks does not necessarily mean a deal to end the trade tension is imminent.

Against this backdrop, the UK’s FTSE 100 adds 0.56 per cent to 7539, Italy’s FTSE MIB gains 0.32 per cent to 21,322, France’s CAC 40 rises by 0.05 percent to 5,570, while German DAX 30 sheds 0.18 per cent to 12,518. US stock index futures are slightly lower amid lingering uncertainty over the prospect of a trade deal between the US and China.

EURUSD is making recovery attempts after a dip on Monday. The pair refreshed nearly two-week lows around 1.1275 earlier in the day and now tries to get back above 1.13. The upside potential in the pair is limited despite the reports that ECB policymakers see non need to rush into July rate cut, preferring instead to wait for mode data on the economy. Besides, the Italian prime minister Giuseppe Conte said that the country’s budget is perfectly in-line with EU rules.

However, the common currency failed to capitalize on positive headlines as fresh disappointing economic data weighed. In particular, according to Eurostat, euro zone PPI came in at -0.1% in May versus +0.1% expected. The yoy index was also worse that expected, at +1.6% versus +1.7% and +2.6% earlier. However, in fact, this is a lagging indicator. Especially considering that we had June CPI figures already released last week. Technically, EURUSD needs to hold above the 100-DMA in the short term in order to avoid another pullback.

Crude oil prices are mostly lower on Tuesday as the relief rally in global financial markets on the outcome of the G20 summit abates. Investors doubt that the arrangement on renewing trade talks will bring some progress in resolving the issues between the US and China. Besides, traders continue to worry about the dismal economic data from major economies pointing to a slowing growth which in turn threatens the global oil demand. This is especially worrying against the backdrop of rising activity in the US shale oil fields. Later today, the API will announce its traditional weekly data on crude oil inventories. Should stockpiles decline again, the market may receive some local support but the downside risks are still there. Brent is now struggling to hold above the $65 handle which remains in focus.

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 0,25 %
Switzerland 3 Month LIBOR Range -0.75 %
United Kingdom Repo Rate 0,10 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 0,25 %
Australia Cash Rate 0,25 %
Canada Overnight Rate Target 0,25 %
All rates
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