Stock markets in Europe had a subdued session yesterday as there was little in the way of major macroeconomic or political announcements.
Traders spent the session thinking about the G20 summit, which begins on Friday, and President Trump is set to meet with Xi Jinping.
The US-China trade situation has being going hot-and-cold, yesterday, the Chinese vice commerce minister, Wang Shouwen, said the US needs to drop its ‘inappropriate’ treatment of Chinese technology companies. The comment was an unpleasant reminder that concerns about national security is at the core of the trade dispute. President Trump, wants to rebalance the trading relationship with China, but he also wants to protect US intellectual property, and could prove to be a tough issue to overcome.
The DAX underperformed in Europe yesterday on the back of Daimler lowering its profit guidance. The car maker had diesel vehicles recalled at the request of the German Federal Motor Transport Authority as cars had software that was skewing the fuel emissions. The auto sector in Germany is already under pressure from trade concerns, the last thing it needs is another diesel-related scandal.
US markets saw low volatility and the S&P 500 and the NASDQ 100 finished fractionally lower. China’s vice Premier, Liu He, spoke with Robert Lighthizer and Steven Mnuchin – both are part of Mr Trump’s trade negotiating team. This is seen as a warm-up act before the big meeting later this week. Stocks sold-off in Asia overnight as traders were worried about the trade spat.
The German economy is ticking along, and the Ifo business sentiment index cooled to 97.4 in June, which was slightly above the consensus estimate of 97.2. There wasn’t much from the eurozone yesterday in terms of news, but it’s important to remember that the German manufacturing sector is still in incurring negative growth.
Tensions between the US and Iran have ticked up after President Trump singed an executive order imposing ‘hard-hitting’ sanctions on Iran as a retaliation for downing a US drone. Washington DC claimed the US will maintain its tough stance against the regime until it halts its ‘dangerous activities’. The US leader balanced out the statement and by saying he doesn’t ‘seek conflict with Iran’. Tehran claimed that diplomatic relationships could me closed ‘forever’ but that sounds like bluster.
The rising tensions actually played a role in the sell-off in the oil market as traders began to fear that demand for oil will fall. The G20 summit is likely to play a big role in oil’s next move as a fractured trading relationship between the US and China has added to fears that oil demand will decline in the medium-term.
The US dollar remains weak as dealers are concerned the Fed will cut rates later this year. The Dallas Fed manufacturing activity reading in June was -12.1, which was a decline on May’s -5.3, and it undershot the -2 forecast. The underwhelming update is a further sign the US economy is cooling.
The CaseSchiller house price index report will be revealed at 2pm (UK time), and economists are anticipating of reading of 2.6% on a yearly basis.
There will be a number of US economic updates released at 3pm (UK time). The Conference Board consumer confidence report is tipped to come in at 131.2, which would be a drop from the 134.1 reading in May. New home sales are expected to rebound and grow by 1.9% in May, and keep in mind there was a decline of 6.9% in April. The Richmond Fed manufacturing index is expected be 7.
Jerome Powell, the head of the Federal Reserve, will be speaking in New York at 6pm (UK time). Mr Powell’s’ comments will be closely watched in light of the dovish update that was delivered last week.
EUR/USD – has been largely pushing higher since late May, and a break above 1.1400 might bring 1.1448 into play. A move back below 1.1200 might pave the way for the 1.1110 area to be retested.
GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might encounter support at 1.2476 region. The 1.2800 area might act as resistance.
EUR/GBP – has rebounded for over one month, and if it holds above 0.8800, it might bring 0.9000 into play. A move to the downside might bring the 200-day moving average at 0.8780 into play.
USD/JPY – has been in a down trend since late April, and if the bearish move continues it might target the 106.00 mark. Resistance might be found at the 50-day moving average at 109.90.