Macro economics

Analytics on 26/06/2019. Markets inspired by trade hopes, oil struggles to extend the rally

Following initial losses, European stocks rebounded after U.S. Treasury Secretary Steven Mnuchin said that the U.S. and China were closing in on a trade deal. I particular, Mnuchin expressed confidence that Trump and Xi Jinping can make progress in stalled trade talks at the forthcoming Group of 20 meeting in Japan this weekend. Earlier, risk sentiment was dampened less dovish than expected comments from Federal Reserve chairman Jerome Powell who tempered expectations of an imminent cut to interest rates. In separate stocks, Micron’s better-than-expected results supported semiconductor companies, with European companies Infineon, Siltronic and Dialog Semi are rising 1% in average.

Against this backdrop, the UK’s FTSE 100 adds just 0.06 per cent to 7427, Italy’s FTSE MIB gains 0.14 per cent to 21,157, France’s CAC 40 rises 0.08 percent to 5,518, while German DAX 30 gains 0.46 per cent to 12,285. US stock index futures surge on Mnuchin comments.

Amid the recovery in risk appetite, USDJPY jumped higher on Wednesday. The pair received the intermediate support around 107.00 and rebounded to the 107.70 area as safe-haven yen demand waned. Expectations of striking a trade deal between the US and China inspired global investors and lifted the pair.

However, the greenback is back under some pressure against the European currencies. EURUSD managed to hold above the 200-DMA around 1.1350 and trimmed intraday losses afterwards. However, the upside potential in the pair is limited, in part due to the fact that Standard & Poors has cut Italy’s GDP growth estimate for 2019 to 0.1% vs. 0.7% previous. Technically, the common currency needs to firmly regain the 1.14 level in order to confirm recent bullish path.

Meanwhile, GBPUSD is little changed on the day after a recent spike to 1.27 faded. Bank of England Governor comments came mixed. Carney said that it's more likely they would provide stimulus than tighten policy after no-deal Brexit and added that Brexit uncertainty is hurting short-term economic performance. On the positive side, he noted that if headwinds in the economy lift, higher rates would be appropriate, while tightness in UK labor market has been feeding through into pay growth. As such, the contradictory statements left the cable directionless. The immediate resistance now comes at 1.27, while the nearest support comes around 1.2635.

Crude oil prices failed to challenge the $65.50 area and got back to the opening levels around $65. The momentum is fading after yesterday’s rally that was sparked by US data. According to American Petroleum Institute, U.S. crude stockpiles fell by 7.5 million barrels in the week ended June 21 to 474.5 million, compared with analyst expectations for a decline of 2.5 million barrels. In a wider picture, US-Iranian tensions continue to support the market. A daily close above $65 will somehow improve the short-term technical outlook for Brent.

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 1.75 %
Switzerland 3 Month LIBOR Range -0,75 %
United Kingdom Repo Rate 0,75 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 1 %
Australia Cash Rate 0.75 %
Canada Overnight Rate Target 1,75 %
All rates

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