Concerns about the US China trade spat went into overdrive again, and that prompted traders to dump stocks yesterday. 

At the start of the week, calm fell upon the markets in the wake of the 90-day delay on Huawei products, but that has now disappeared as dealers have made the realisation that both sides are unlikely to make a deal any time soon.

US secretary of state, Mike Pompeo claimed that China is a threat to national security, and he predicts that more firms will distance themselves from Huawei, and at the risk of appearing un-American, many might sever links with the Chinese tech firm. Up until late April, the trade talks seemed to be going in the right direction, and that was a major part of the rally stocks enjoyed throughout 2019, and now some major indices we could be in for a retesting of last week’s lows.

The economic slowdown that we saw in China at the start of the year let President Trump think that he had the upper hand, but yesterday we saw some disappointing data from the US. The manufacturing and services PMI reports came in at 50.6 and 50.9 respectively, and both showed declines on the month, and undershot economists’ forecasts. This might be the sign that the US economy is going down a gear. Trump is sticking to his manifesto with regards to taking the economic war to China, but he’s no longer tweeting about the Dow Jones.

The major US indices closed lower last night, but finished off the lows of the session. Despite the controversy surrounding Huawei, President Trump claimed a trade deal with China can still be done that includes though restrictions of the tech firm. Stocks in China are showing tiny gains.  

In Europe, the standout out economic news was the dismal German manufacturing PMI update. A reading below 50.0 indicates negative growth, and the May report dropped to 44.4 –it’s lowest in over six years. Between the German manufacturing sector being in deep contraction, and the share price of Germany’s largest bank – Deutsche Bank, at a record low, all is not well in Europe’s dominant economy.

Sterling has had a turbulent few days given the questions hanging over Theresa May’s future. UK voters went to the polls yesterday to cast their vote on the EU elections, and the speculation was that the Tories got trounced. The possibility of Mrs May leaving Downing Street in the near-term has weighed on the pound as dealers ponder the possibility of pro-Brexit Boris Johnson leading the country, or it might set in motion a chain of events that brings about another general election. Talk of Theresa May stetting set out a timeframe to set down has been has been doing the rounds in the past 24 hours.

Yesterday, he US dollar index touched a two-year high, largely because of the uncertainties associated with the pound and the euro, but then handed back some of its gains due to the poor US PMI updates.

Oil plunged yesterday as the energy is a proxy for the health of the global economy, and worries in relation to the US-China situation spooked dealers. The tepid German manufacturing numbers added weight to the bearish argument also.

Gold and silver shone yesterday as risk-off attitudes made the precious metals attractive to investors, but industrial commodities like palladium and platinum suffered over demand concerns.  

UK retail sales will be announced at 9.30am (UK time), and economists are expecting -0.3%, and that would be a sharp drop from the 1.1% growth previously achieved. The report that excludes fuel is tipped to drop by 0.5%, and keep in mind it saw 1.2% growth in March.  The UK CBI realised sales update will be announced at 11am (UK time), and traders are expecting a reading of 8, and the previous report was 13.

US durable goods will announced at 1.30pm (UK time) and the consensus estimate is for a 2% decline, but the report that strips out transport is tipped to show an increase of 0.2%.   

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 1.1322.  

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 1.2956, might act as resistance.

EUR/GBP – has rebounded for over two weeks, and if it holds above 0.8800, it might bring 0.8939 into play. A move to the downside might bring the 50-day moving average at 0.8629 into play. 

USD/JPY – while it holds below the 100-day moving average at 110.55, its outlook should remain bearish, and support might be found at 108.50. A rally might target the 112.00 region.

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. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.