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US-China trade talks in focus, Trump’s allies in trouble

The S&P 500 and Russell 2000 both reached record-highs as the bullish sentiment on Wall Street continues. 

US equities have enjoyed an impressive run on the back of strong corporate earnings in the latest reporting season, and robust economic indicators. It also helps that the US economy is comparably stronger than Europe and Asia. President Trump sent the US dollar lower after he took a swipe at Jerome Powell, the head of the Federal Reserve, for hiking interest rates. The sell-off in the greenback, helped overseas investors snap up US stocks.

US stock index futures traded lower overnight after two of Mr Trump’s allies were caught up in legal trouble. Michael Cohen, Trump’s former lawyer, pleaded guilty to various different charges from tax fraud to campaign finance violations. Paul Manafort, former campaign boss, was found guilty of a number of violations, including bank fraud and tax fraud. Mr Cohen testified that Mr Trump instructed him to break the law in 2016, and this has taken the shine off the positive stock market story.

The US-China trade meeting will take place today, and traders certainly have high hopes. Since the announcement of the meeting, dealers have had the mind-set that the very act of sitting down and discussing trade is a step in the right direction. The politicians on the other hand are giving off the impression that not much will be achieved.

The Chinese authorities have been encouraging domestic banks to up their lending to exporters. President Trump stated he has ‘no time frame’ in mind for the trade negotiations. It was also reported that the US are contemplating another round of tariffs on Chinese imports. It is important that both sides don’t appear too eager to make a deal going into the talks, so this could just be posturing.

The Turkish lira may have simmered down a bit, but the problems are still bubbling away. The US government won’t allow any concessions regarding the US pastor, and for the time being Mr Trump wants to keep the pressure on the country. Additional slides in the lira could ripple out into the eurozone.

The Federal Reserve will release minutes from the latest meeting at 7pm (UK time). The update will give us a better idea as to what the US central bank are thinking. Interest rates were kept on hold, earlier this month, but the language of statement that followed was distinctively more hawkish. The central bank confirmed that ‘economic activity has been rising at a strong rate’ and that business fixed investment along with consumer spending had ‘grown strongly’. Traders are widely expecting the Fed to hike rates next month, and tonight’s minutes could be seen as a stepping stone.

The US existing homes sales report will be announced at 3pm (UK time) and economists are expecting 5.4 million, and that would be a slight improvement on the 5.38 million that was registered in June.  

At 3.30pm (UK time) the Energy Information Administration will release the latest oil inventory figures and the consensus estimate is for a 1.5 million barrel drop, and that would compare with last week’s jump of 6.8 million barrels. The American Petroleum Institute released their latest report last night, and oil inventories fell by 5.77 million barrels and the gasoline stockpiles declined by 930,000 barrels.  

EUR/USD – now that it has broken above the 1.1500 region, we could see further gains, and resistance might be found at 1.1615 – 50-day moving average. If the wider negative trend continues, support might be found at 1.1287 or 1.1156.

GBP/USD – has been in a downtrend since April, and if the bearish move continues it could target 1.2590. Pullbacks might run into resistance in the 1.2957 to 1.3000 region.       

EUR/GBP – has been pushing higher since April and if the bullish run continues it could target 0.9050. A move lower might find support at 0.8900 or 0.8844. 

USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 112.15. Support might be found at 109.86 – the 200-day moving average.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. 

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