European stock markets sold-off severely yesterday as the trade spat between the US and China dented investor confidence. The Trump administration has taken a tough measure by banning all Huawei products from its market, and that could be a roadblock to any potential progress in US-China trade talks.

Beijing have rowed back on previous commitments that we made in recent months, and now the Huawei situation has upped the ante even further. Relations between the two sides seem to be at their lowest for a while, and given that Trump doesn’t have a history of backing down, the standoff could be prolonged.

The FTSEMIB was the worst performer in Europe yesterday as traders were concerned that the coalition government in Rome is looking shaky. The right-wing Lega party and the anti-establishment 5 Star Movement are in government together, but cracks are beginning to show as the two sides having increasingly different views on many different topics, spending. Dealers are worried it could bring about an end of the coalition and trigger a general election. Italy is sitting on a pile of debt, and the country only recently emerged from recession, and the last thing its needs, is political instability.

The broader US index, the S&P 500, lost ground due to trade tensions, but the tech-focused NASDAQ 100 suffered greatly as chip makers were impacted by the Huawei ban, it prompted Lumentum to lower its revenue and earnings outlook, and that had a knock-on effect on Micron Technology and Broadcom.

Chinese stocks traded higher overnight as trade tensions cooled a little after the US commerce department granted Huawei a 90 day licence to assist existing customers, and this gave markets some much needed breathing space.

The US dollar index edged lower yesterday as traders booked some profit from last week’s rally. It was a lacklustre session for the currency markets as there wasn’t much in the way of economic announcements. The greenback’s wider upward move is still intact, and even though the Federal Reserve seem content to sit on their hands in the near-term, the US dollar is likely to remain in demand due to its relative appeal against the pound or the euro.

The upward move in the US dollar last week, kept gold in the bearish move that it has been stuck in since February. Should the metal remain below the $1,300 mark its outlook is likely to remain negative.

Oil pushed higher yesterday as OPEC and some OPEC-aligned countries have hinted they will keep the production cuts in place.  OPEC are due to meet next month, and a decision will be official then, and if President Trump wants his voice heard ,he better take to Twitter sooner rather than later, but the major oil producing nations don’t always listen to his calls for lower oil prices. 

Jerome Powell, the head of the Fed spoke last night and the expressed concern about the rising level of corporate debt, but at the same time stated the risks were ‘moderate’. Later today, US central bankers Charles Evans and Eric Rosengren are due to speak at 3.45pm (UK time) and 5pm (UK time) respectively.

At 11am (UK time) the UK CBI industrial order expectations report will be announced and the consensus estimate is -6, which would be a decline from April’s -5 reading.

US existing home sales will be announced at 3pm (UK time) and economists are expecting 5.35 million, and that would be a slight improvement on the 5.21 million posted in March.

EUR/USD – has been broadly pushing lower since early January, and if the negative move continues it might target the 1.1000 area. Resistance might be found at 1.3220. 

GBP/USD – has been driving lower since mid-March, and if the bearish move continues it might encounter support at the 1.2600 region. The 200-day moving average at 1.2957, might act as resistance.

EUR/GBP – has rebounded for over two weeks, and a break above 0.8800, might bring 0.8939 into play. A move to the downside might bring the 50-day moving average at 0.8614 into play.

USD/JPY – while it holds below the 100-day moving average at 110.50, its outlook should remain bearish, and support might be found at 108.50. A rally might target the 112.00 region.

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