It turned out to be a rather mixed session for European markets yesterday with the German DAX continuing to feel the chill and act as a pressure valve for concerns about trade, closing at a fresh two-month low.
The FTSE 100 on the other hand outperformed, helped by a rebound in the oil price on reports that the US was pressuring its allies to cut its Iranian imports to zero by the beginning of November, sending WTI prices to a one-month high. This offset an announcement from Saudi officials that they planned to pump a record 10.8m barrels a day through the month of July.
If US officials are concerned about rising oil prices they appear to have a strange way of showing it in terms of the timings of these announcements, though supply disruptions in Libya and Canada aren’t exactly helped as prices pushed even higher in Asia.
US markets did manage to eke out a slightly more positive session yesterday with the Dow finally breaking an eight-day losing streak, however the gains weren’t particularly convincing driven as they were by energy and tech stocks, while Asia markets continued their recent soft tone as Chinese stocks once again continued to slide. As we head towards the European open investors look to taking their cues from the US rebound as opposed to the weaker tone in Asia.
There still remains a great deal of uncertainty as to what the next steps in what continues to look like a disjointed US trade policy, with Treasury secretary Steve Mnuchin and trade advisor Peter Navarro apparently on completely different pages to one another.
President Trump, on the other hand seems to have taken issue with iconic motorcycle brand Harley Davidson’s decision to build more of its EU destined products at its offshore sites in India or Brazil in an attempt to offset the increase in costs that the recently introduced tariffs would put on prices. While the sums of $40m for this year and $90m for next year may seem small they remain a lot of money for a company which is essentially a mid-cap stock, with a market cap of $6bn.
One wonders if President Trump would be so critical if a big multinational like Boeing or Apple acted in a similar fashion.
Given the current uncertainty investors appear to be taking the opportunity to adopt a more safety first approach as we head towards the end of the month, the quarter and the half year in terms of doing a little bit of portfolio readjustment, as we head towards the second half of the year.
The pound had a disappointing day yesterday struggling for gains in the wake of incoming new monetary policy committee member Jonathan Haskel’s testimony to the Treasury Select Committee. It would appear that he is likely to be less hawkish than the man he is replacing, Ian McCafferty which suggests that the window for a rate rise could well be closing in the event we don’t get a move in August or a significant improvement in the economic data.
Later this morning Bank of England governor Mark Carney will be speaking in his role as head of financial stability. We could also get an insight into how he views the recent change of view by Andrew Haldane, the bank’s chief economist, who voted for a rate rise at the most recent meeting.
He might also face some searching questions about the central banks expenses culture after yesterday’s rather embarrassing revelations about the size of Donald Kohn and Anil Kashyap’s travel arrangements. I’m guessing in this internet age neither of them has heard of Facetime or Skype?
EURUSD – the failure to push above the 1.1720/30 area has seen the euro slip back towards support at the 1.1620 area. A break of 1.1750 argues for a move towards 1.1920, while a break of the 1.1600 area opens up the May lows at 1.1510/20. A break below 1.1500 has the potential to open up a move towards the 1.1360 level.
GBPUSD – looking soft with support at the 1.3210/20 area, while we also have trend line support from the 2017 lows coming in at the 1.3110 level. While above these two key levels we should see a retest of the highs this month at 1.3450. A break below 1.3100 opens up a potential move towards 1.2980.
EURGBP – still capped with resistance near the 200-day MA at the 0.8820/30 area with the recent lows at 0.8700 the next key support. A move through here opens up the 0.8640 area.
USDJPY – while above the lows of last week at 109.20 we still have the potential for a return to the 110.00 level as well as a possible retest of the recent highs at 111.00.
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