Trump and Xi confirmed that they do not intend to levy any new tariffs against each other’s products at present. The US-China trade truce inspired stocks across the globe on Monday, including European markets. Chipmakers are leading the gains, with AMS stocks rallied nearly 10%, while ASMI and Infineon gained over 5%. The rise was due to the lighter restrictions on Huawei and a report that US semiconductor equipment supplier Applied Materials will buy Japan's Kokusai Electric for about $2.3 billion. Against this backdrop, the Stoxx 600 tech index hit a one-year high in early trading. Meanwhile, risky assets are also supported by comments from the Richmond Fed President Barkin who said that weaker economic growth would force conversation about interest rate cuts.
Against this backdrop, the UK’s FTSE 100 adds 1.28 per cent to 7520, Italy’s FTSE MIB gains 0.26 per cent to 21,289, France’s CAC 40 rises by 0.93 percent to 5,590, while German DAX 30 gains 1.32 per cent to 12,562. US stock index futures are climbing more than 1% on a positive outcome of the US-China meeting on the sidelines of the summit.
On the data front, the Eurozone unemployment rate declined to 7.5% in May versus 7.6% expected and 7.6% previously. The jobless rate registered the lowest level since July 2008. Meanwhile, manufacturing PMI came in lower than expected, at 47.6 versus 47.8 expected and 47.7 in May. Further signs of slowing economic activity in the region added to the negative pressure on EURUSD, apart from a stronger dollar across the board. The USD bulls cheered the agreement to resume trade talks as declining tensions between the US and China are lowering the probability of an aggressive rate cut by the Federal Reserve. As such, EURUSD dipped to lows around 1.1315 earlier in the day and remains under pressure. As long as the pair stays below the 200-DMA, the selling pressure will prevail in the short term.
USDJPY jumped to 108.50 and then retreated partially but remains in the green on the daily charts so far. The pair is driven by a wide dollar strength though a muted positive reaction points to lingering risks associated with the trade war as investors still doubt that the world’s two largest economies will be able to strike a trade deal any time soon. Technically, the pair needs to hold at least above 108.00 to make further bullish attempts in the near term.
Brent crude rallied to fresh late-May highs at $66.73 during the early trading but gave up some gains since then. Oil market is supported by positive outcome of the Trum-Xi meeting, along with other risky assets. On the other hand, traders continue to express concerns over rising activity in the US oil fields on the back of prospects of weakening global demand for oil. So, as soon as the optimism over trade talks abates, Brent could get under pressure again, especially if fresh data from the US point to rising inventories and production.
Nathan Lambert, Head of Global FX Analytical Department