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Central bankers turn dovish, eurozone CPI in focus

Central bankers turn dovish, eurozone CPI in focus

European equity markets finished higher yesterday as the bulls powered through the negative trade sentiment. 

Indices had an impressive session as they started out in the red, but managed to do a U-turn, and post respectable gains.

The trade standoff between the US and China still lingers, and even though tensions still persist, trades weren’t dissuaded from buying back into equities. Financial markets don’t move in straight lines, so a bounce back wasn’t a surprise, but the acid test will be if the markets can build on yesterday’s gains.

In the US last night, the tech sector was hit hard by fears the Department of Justice (DoJ) are preparing an antitrust investigation into Alphabet, the parent company of Google. There was chatter the government body will scrutinise the company’s search practices, and that put pressure Alphabet’s share price. Apple shares fell after it was reported that the DoJ has jurisdiction over a potential antitrust investigation, and Facebook shares also fell over general tighter regulation fears. The NASDAQ 100 endured a severe sell-off, while the S&P 500 ended lower.

At the worldwide developer conference, Apple revealed plans to phase out iTunes, and it will be rolled into Apple Music, Apple Podcasts, and Apple TV.

The US dollar index lost a lot of ground yesterday after James Bullard of the Federal Reserve said a rate cut might be needed ‘soon’ and the central banker cited trade worries and weak inflation for the possible intervention

Gold and silver took advantage of the softer greenback and rallied as the inverse relationship between the metals and the greenback remains strong. The precious metals have also acted a haven for traders fleeing stocks.

Equity markets in Asia largely declined overnight as the negative sentiment from Wall Street spilled over to the Far East.  

China has launched an investigation into Fedex, after the parcel delivery company accidentally sent goods that we bound for Huawei’s office in China, to the US. The parcel delivery company apologised for the error and stressed it was a mistake. The move by the Chinese government underlines lack of trust between the two sides.

In recent weeks we have heard that China tried to renegotiate the trade deal with the US, but recently China claimed the US backtracked on the agreement. The tit-for-tat trade spat is still hanging over the markets and it doesn’t seem like the relationship will be patched up anytime soon.

At the back end of last week President Trump threatened Mexico with 5% tariffs on all imports from 10 June. The announcement was designed to force Mexico to crack down on boarder security. White House staff have claimed the levies are ‘not interrelated’ to the North American trade deal, but it acts as a reminder as to how unpredictable President Trump is when it comes to trade.

Mr Trump landed in the UK yesterday and so far the visit has gone smoothly. In advance of his arrival he claimed that Boris Johnson would make an ‘excellent’ Troy Party leader. The US president is known for speaking his mind, and he doesn’t always play by the diplomatic rule book, so he might offer a clue about the future of UK-US relations. Mr Trump said a trade deal between the two countries is possible once the UK wraps up its exit from the EU.

Overnight, the Reserve Bank of Australia (RBA) cut interest rates to 1.25% from 1.5%, and the move wasn’t exactly a shock. The RBA took the decision to loosen monetary policy in order to assist employment growth, and help achieve the medium-term inflation target.  

There are a number of economic announcements from the eurozone today. The Spanish unemployment change will be released at 8am (UK time), and economists are expecting a decline of 67,000. At 9am (UK time), the Italian unemployment rate will be released at 9am (UK time), and the consensus estimate is 10.3%. Eurozone CPI will be revealed at 10am (UK time), and economists are expecting it to drop to 1.3% from 1.7%, while the core report is tipped to decline to 0.9%. Last week, we saw big drops in German, French and Spanish CPI, and it suggests that underlying demand is falling.

UK construction PMI will be announced at 9.30am (UK time), and the report is expected to be 50.5, which would be no change on the month.  

Jerome Powell the head of the Fed is due to speak at 2.55pm (UK time). Mr Powell’s comments will be closely watched seeing as the markets are pricing in a reduction in interest rates at the back end of this year.

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 1.2476 region. The 200-day moving average at 1.2951, might act as resistance.

EUR/GBP – has rebounded for over three 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 0.8660 into play. 

USD/JPY – while it holds below the 100-day moving average at 110.59, its outlook should remain bearish, and support might be found at 107.51. A rally might target the 110.00 region.

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