Despite a disappointing week for global markets we saw a strong rebound on Friday with US markets closing well off their weekly lows on the back of optimism that while US and China officials are still talking, any escalation could well be averted.
There is a limited window for progress given that goods currently in transit are exempted from the new tariff increases. This translates into a window of up to two weeks on any goods that have left Chinese ports before they arrive in the US, and would then be subject to the new tariff regime.
This end of week optimism seems somewhat misplaced given the rhetoric we heard over the weekend, as China pushed back on US claims of backsliding, as well as saying that they would look to respond in due course.
In anticipation of a Chinese response the US administration is expected to outline later today the details of a further round of tariffs on another $300bn worth of Chinese goods. These would be on top of the ones implemented last week, though aren’t expected to be rolled out straightaway, but kept in abeyance as another tool to use in further talks.
Any optimism that President’s Trump and Xi might meet at next month’s G20 summit in Japan next month needs to be tempered by the fact that the new tariffs, announced last week, will have fully kicked in by then, in the absence of any agreement in the interim.
Not content with taking on China the US has also been upping the ante with Iran, over its funding of terrorism in the Middle East, sending a US carrier group to the region, while later this week the US is also expected to announce a decision on whether to implement tariffs on imported cars from the EU.
Against this backdrop it is unsurprising that the start of trading this week has seen markets in Asia come under pressure, though markets in Europe look set to open a little bit higher largely as a result of the residual effects of last week’s late US rebound.
On the Brexit front the government is set to resume talks with the Labour Party today with a view to making changes to the political declaration on customs.
With opinion polls pointing to an almost Conservative wipe-out in the European elections it is hard to see the talks ending in anything but failure, especially if Labour insists on a confirmatory referendum attached to any deal.
A number of Conservative MPs are also expected to increase the pressure on forcing the PM to go, something that might come to a head later this week.
On the IPO front Uber suffered a little bit of a mishap on its first day of trading sliding back 7% from its $45 float price, reversing a trend in US IPO’s that had seen first day gains. This doesn’t bode particularly well for its future performance given the concerns expressed in the lead up to the float that it was overpriced, and that its pricing was based on hopes for future growth rather than the expectation of it. Even Lyft, which is now down 20% from its $72 IPO price managed to post a first day gain.
The next few days are likely to be crucial in determining whether we see further losses and whether the company becomes a target for short sellers, or whether we start to see some buyers creep in if the share price drops below $40 a share.
EURUSD – the 50-day MA appears to be containing the upside for now near 1.1270 with wider resistance at the 1.1325/40 area and the April peaks. The bias remains to the downside, and the lows at 1.1110, while below this key resistance level.
GBPUSD – support remains near the 1.2960/70 area. A break below 1.2960 and the 50-day MA could well open up a move towards the 1.2800 area. We need a move above 1.3070 to stabilise.
EURGBP – the recent range highs at 0.8680 remain a key resistance area, with a break targeting 0.8720. While below the risk is for a drift back down towards the 0.8570 area on a break below 0.8620.
USDJPY – still on course for the 109.20 area while below the 110.30 resistance. While below 110.30 the risk has shifted to the downside and an eventual move towards 108 00. Above 110.30 argues for a move back towards 111.00.