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Equities assisted by Trump-Kim meeting

Overnight President Trump met with Kim Jong-un of North Korea. 

The historic meeting is a milestone in the relationship between the two countries. The aim of the meeting is to build up trust between the two sides, and ultimately get the North Korean regime to abandon its nuclear ambitions. There has been talk the US will assist with boosting investment in the country. The meeting should go a long way to put investors’ nerves in the region at ease.

Equity markets shrugged off the vibrant G7 meeting at the weekend. Equity traders are getting used to the way President Trump conducts business. Investors are becoming desensitised to Trump’s temper tantrums, and now it is actions that will move markets, and not words. The EU and Canada will have to take a leaf out of China’s book, and make Mr Trump an offer to get the ball rolling. There will be a lot of back and forth in the coming weeks, and it won’t be resolved quickly, and dealers are preparing themselves for a bumpy ride.

The FTSE MIB was the star performer in Europe yesterday. Over the weekend, Giovanni Tria, Italy’s new economy minister ruled out leaving the euro. This settled investors’ nerves greatly as the prospect of one of the largest eurozone economies dropping the euro rocked investor confidence in recent weeks. The new government in Rome will press ahead will domestic polices such as taxation, public spending and immigration, but much of the media attention will drop off as they have committed to the single currency.

The pound lost ground versus the US dollar and euro yesterday after poor UK economic indicators were reported. Industrial output fell by 0.8%, while manufacturing output declined by 1.4%. The goods trade balance deficit widened from £12 billion to £14.03 billion, and dealers were anticipating it to fall to £11.3 billion. The one good bit of data wasn’t even that good. Construction output swung from -2.3% in March to 0.5% in April, while the consensus estimate was for 2%.

Sterling will remain in focus today as the latest UK unemployment and average earnings figures will be released at 9.30am (UK time). The unemployment rate is anticipated to hold steady at 4.2%. Economists are expecting average earnings (excluding bonuses) to be unchanged at 2.9%. The inflation rate has cooled in recent months, and this has taken some of the pressure off the British consumer. While the average earnings growth rate is outstripping the cost of living, it should boost disposable income.

At 1.30pm (UK time), the US will announced the CPI report for May, and the consensus estimate is for 2.7%, which would be a big improvement on April’s 2.5%. Even the core inflation report is tipped to rise from 2.1% to 2.2%. The Federal Reserve have made it clear they are not worried about the inflation rate exceeding their target of 2%, it is growth they are more concerned about.

EUR/USD – has been pushing higher for over a week, and if 1.1830 is cleared, it might pave the way for 1.2000 to be tested. Support might be found at 1.1700, and a break below it might bring 1.1617 into play.

GBP/USD – is continuing its bounce back, and if it moves above 1.3450, it could target 1.3594 – the 200-day moving average. A move lower might encounter support at 1.3300, and a break below it might put 1.3204 on the radar. 

EUR/GBP – has been broadly moving higher since April, and if it clears 0.8836 – 200-day moving average, it might target 0.8900. Beyond that, bulls might look to 0.8970. Support might be found at 0.8725.

USD/JPY – has been in an upward trend since mid-March, and if it can hold 110.17 – 200-day moving average, it might target 111.39. Support might be found at 108.92 – 50-day moving average. 

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