Macro economics

Analytics on 17/06/2019. Markets shift focus to central banks

European stocks are mostly higher on Monday though investor activity is subdued at the start of a new trading week and ahead of the crucial FOMC meeting. Besides the US central bank, the Bank of Japan and the Bank of England are meeting this week. Banking shares, led by Deutsche Bank and HSBC, overshadow losses in airlines after a profit warning from Lufthansa. Lufthansa stocks lost over 12% after the company lowered its profit outlook for the full year 2019, citing price competition. Deutsche shares add 3% after reports that the German lender is planning to create a “bad bank” that would sell assets valued at up to €50 billion.

Against this backdrop, the UK’s FTSE 100 loses 0.23 per cent to 7328, Italy’s FTSE MIB adds 0.16 per cent to 20,645, France’s CAC 40 rises by 0.23 percent to 5,380, while German DAX 30 gains just 0.04 per cent to 12,102. US stock index futures are marginally higher as well.

The greenback turned slightly negative against the European counterparts on Monday after a strong rally on Friday, when the US revealed the unexpectedly strong retail sales data that made investors trim bets on a rate cut by the Fed. However, traders expect a confirmation of a more dovish tone from the US central bank on Wednesday, which should cap dollar’s bullish attempts in the near term.

EURUSD is making recovery attempts but remains close to lows around the 1.12 handle. The risk of a break below this level remains as the ongoing geopolitical tensions continue to benefit the dollar’s safe-haven status. From the technical perspective, failure to climb back above the 100-DMA around 1.1270 indicates that the bearish bias persists. A break below 1.12 will reinforce the negative outlook and could make the common currency vulnerable to further losses with the next target around 1.11.

Crude oil prices turned negative after two days of gains. Brent failed to challenge the $62.50 intermediate resistance and had to retreat to lows around the $60 handle. Despite the risk of supply disruptions in the Middle East, the market struggles to see a sustainable ascent as traders are still focused on the risks for global demand amid the unresolved trade issues between the US and China. The additional pressure on riskier assets including oil could come from the Federal Reserve this week should the central bank’s tone turn out not as dovish as expected.

Gold prices are extending the retreat from April 2018 highs above $1,1350 registered on Friday. The bullion slipped to $1,332 on Monday amid a steady dollar after strong retail sales and industrial production data. At the same time, the precious metal remains elevated and could go lower further amid overbought conditions if the dollar benefits from the upcoming FOMC meeting. Technically, the bearish risks for gold are limited as long as prices stay above the key $1,300 psychological support.

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 2,50 %
Switzerland 3 Month LIBOR Range -0,73 %
United Kingdom Repo Rate 0,75 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 1,75 %
Australia Cash Rate 1,50 %
Canada Overnight Rate Target 1,75 %
All rates

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