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Europe called higher despite China’s trade surplus slide

China released the latest trade figures overnight. The trade balance was a surplus of $28.05 billion, while the consensus estimate was $39.33 billion, and the June surplus was $41.47 billion.

A drop in the trade surplus is hardly a surprise given the trade tensions between China and the US. Imports jumped by 27.3%, and economists were expecting an increase of 16.2%. Exports rose by 12.2%, while traders were expecting an increase of 10%. It is worth noting that exports jumped by 11.2% in June. The disappointing trade figures puts China in a difficult position given the standoff with Washington DC in relation to trade.   

Equity traders were in bullish form yesterday as no new negative news acted as a catalyst for buying. Washington DC and Beijing remain at odds with each other when it comes to trade, but that didn’t stop investors from acquiring stocks yesterday.

European equity benchmarks are lagging behind their US equivalents as the Dow Jones and S&P 500 reached their highest levels since mid-February. It has taken many months but the major US markets are recouped well over half the ground they lost in the sell-off in January and February.The US labour market received another boost today on account of the JOLTS report. In June, there were 6.66 million new job openings, which was slightly above economists’ estimates, and the May report was given an upward revision. At the back end of last week, the US jobs report was a positive update overall, and this adds weight to the argument that the Federal Reserve should hike rates in September and December. 

The US dollar index cooled yesterday after hitting a three week high on Tuesday. The prospect of two more rate hikes from the Fed this year is likely to keep demand for the US dollar high. 

Sterling had a lacklustre session yesterday. The pound has lost a lot of ground due to the growing fear of a no-deal Brexit. The positive bump the pound received on Tuesday morning on the back of the upbeat Halifax UK house price report didn’t last long, and that suggests that confidence in the pound is still weak. We are not expecting any major economic announcements from the UK today, but traders will be paying close attention to the latest political developments regarding Brexit.     

Oil jumped after the Trump administration tightened the screws on Iran in the form of renewed sanctions against the regime. Mr Trump warned others from trading with Iran by declaring that ‘anyone doing business with Iran, will not be doing business with the US’. The isolation tactic will deter others from trading with the state, and seeing as Iran is a major supplier of oil, global supply levels are likely to take a hit.  The Energy Information Administration (EIA) will release the latest US oil and gasoline data at 3:30pm (UK time) and we are likely to see a jump in volatility at the announcement. The American Petroleum Institute reported that US oil stockpiles dropped by 6 million barrels, while the gasoline stockpiles jumped by 3.1 million barrels – this will set the tone for the EIA data.   

EUR/USD – remains below the trend line from the June high, and while it remains below the 1.1720 area its outlook could remain negative. A break below the 1.1510 area, might bring about further losses. A move back above 1.1720, could bring 1.1850 into play. 

GBP/USD – has been in a downtrend since April, and if the bearish move continues it could target 1.2900. Pullbacks might run into resistance at 1.3206 – 50-day moving average, or 1.3363.      

EUR/GBP – has been pushing higher since April and if the bullish run continues it could target 0.9000. A move lower might find support at 0.8844 or at 0.8819 – 200-day moving average.

USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 113.18. Support might be found at 110.80 – 50-day moving average, or at 110.01 – the 200-day moving average.

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