Traders were on edge on Friday as they awaited the update from President Trump in relation to China.
European equity benchmarks posted sizeable losses as dealers feared the US leader will take a very tough stance against China, and possibly look to undo the good work that was done with respect to the first phase of the US-China trade deal, which was signed in January. The FTSE 100 fell over 2.2%, while the DAX and the CAC 40 lost in excess of 1.5% each.
The eagerly awaited update from Mr Trump was delivered a few hours after the close of the European session. Traders were too fearful for their own good as the update from the Donald wasn’t that harsh as far as the markets were concerned. The US leader went into more detail about how he will remove Hong Kong’s special status and effectively treat the region the same as mainland China.
The US-Hong Kong relationship will change in regards to extradition, exports control and technology. Dealers reacted positively to the news as there was no suggestion that phase one of the trade agreement with China would be changed. By the close of play in New York, the S&P 500 finished up nearly 0.5%, while the NASDAQ 100 gained 1.47%.
It seems that President Trump is turning up the heat on Hong Kong, which is likely to stoke tensions in the territory, where some of the residents are already very angry the Beijing administration are trying to tighten its control over the area. Just because Donald Trump didn’t go head to head with the Chinese government over trade, doesn’t mean he won’t at a later date. After all, he has an election to contest at the back end of the year, so he might turn on China then to try and score political points.
Silver and gold enjoyed bullish runs on Friday as the metals benefitted from the worries that circulated in advance of the conference from President Trump. Some dealers poured money into the metals as they didn’t want to hold riskier assets such as shares. Both metals lost a little ground when it was revealed the update about China wasn’t as tough as initially feared. Silver had a particularly good day on Friday as it hit a three-month high.
The oil market saw a major rebound last month as sentiment turned around greatly from April, where WTI prices turned negative. A mixture of steep production cuts, the reopening of economies and fewer fears about the US’s storage capabilities drove up the oil market. WTI surged by 88% last month – a record monthly gain. Not all the news surrounding the oil market is bullish, as there are concerns that Russia are not as committed to the very deep production cuts as other members of OPEC+.
On Friday, the US dollar index fell to a level last seen in mid-March. The greenback lost ground in the last four days of last week. There was chatter in the markets that traders were squaring up their books at it was the end of the month on Friday. The pound saw some weakness at the end of last week as concerns the UK might exit the transition period without a deal in place. It was reported on Friday the Irish government are making preparations for a no-deal scenario. This month is now make or break for negotiations as the British government have previously stated they would be willing to walk away from talks in June if a broad outline of an agreement hasn’t been put in place.
Over the weekend, the China manufacturing PMI report was released and the reading for May was 50.6, which was fractionally below the 50.8 posted in April. The industry has experienced positive growth for three months, although the rate of expansion has cooled. The non-manufacturing PMI reading was 53.6 - its highest level since the pandemic began. The Caixin survey of Chinese manufacturing was posted overnight and the reading was 50.7, while the consensus estimate was 49.6, and keep in mind the previous reading was 49.4.
Equity markets in Asia are firmly higher as well received economic reports from China combined with the fact that Mr Trump didn’t kick off a trade fight with Beijing on Friday boosted sentiment. European indices are tipped to open higher. A number of European countries are celebrating Whit Monday today so volatility is likely to be low. The Frankfurt stock exchange will remain closed.
Between 8.15am (UK time) and 9.30am (UK time), Spain, Italy, France, Germany and the UK will post final readings of their manufacturing PMI reports for May, and economists are expecting 38, 37.1, 40.3, 36.8 and 40.7 respectively.
The final reading of the US manufacturing PMI report for May is tipped to be 39.8, and it will be posted at 2.45pm (UK time). Shortly after, the US ISM manufacturing report will be released and 43.5 is the consensus estimate.
EUR/USD – has been pushing higher since early May and a break above 1.1147 might pave the way for 1.1236 to be tested. A pullback might find support at the 50-day moving average at 1.0896.
GBP/USD – is in a downtrend and while it holds below the 200-day moving average at 1.2659, the bias should remain to the downside, and it might target 1.2000. The 200-day moving average at 1.2659 might act as resistance.
EUR/GBP – is in an uptrend and should the positive move continue it might target 0.9239. A sizeable break below 0.9000, might put 0.8846, the 50-day moving average, on the radar.
USD/JPY – has been pushing lower since March and a break below 106.00 might see it target 104.00. 108.31, the 200-day moving average, might act as resistance.
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