News & Analysis

Dow drops on fears Deputy AG Rosenstein is resigning – trade tensions continue to bite – Europe drops; Oil surges adding 2%; BOJ Kuroda to come today

Sep 25, 2018 | Market Updates

Upcoming high impact news:

15:35 JPY BOJ Gov Kuroda Speaks
23:00 USD CB Consumer Confidence

A mixed session for U.S stocks on Monday, the Dow Jones lost 181 pts after China cancelled trade talks, further political news sent the Dow to session lows. Reports said Deputy Attorney General Rod Rosensteing was resigning from his post. The White House later said in a statement Rosenstein and President Donald Trump will meet on Thursday amid the conflicting reports. Netflix shares gained 2.3% helping the Nasdaq hit a positive close, the index adding 6.29 pts. Sharp losses in GE and Boeing added to the overall somber mood, the S&P500 closing 10.30 for the session.

“Certainly the fact that you have such contention within the administration is not the sort of stability markets like to see. To have a such a high-level official resign is a part of that,” said Bruce McCain, chief investment strategist at Key Private Bank.

European shares finished lower U.S tariffs coming into effect and China cancelling trade talks weighted on sentiment. Comcast won the auction for a takeover of U.K. broadcaster Sky on Saturday, submitting a much higher bid than Twenty-First Century Fox. Sky’s share price surged 8.6% on the deal. The U.K. government has denied reports that it was planning to call a new snap election in November. The Auto sector was in the worst performers following renewed uncertainty over U.S.-China trade relations. The DAX lost 80 pts – the FTSE dropped 31.38 and the CAC closed 18 pts lower.

Oil surged overnight adding 2%, OPEC declined to announce an immediate increase in production despite calls by U.S. President Donald Trump for action to raise global supply. OPEC leader Saudi Arabia and its biggest oil-producer ally outside the group, Russia, on Sunday ruled out any immediate extra increase in output, effectively rebuffing a call by Trump for action to cool the market. “This is the oil market’s response to the OPEC+ group’s refusal to step up its oil production,” said Carsten Fritsch, commodities analyst at Commerzbank in Frankfurt. USOUSD closed 104 cents higher above $72. Buyers tested 72.59 during the session, we haven’t seen a close above $72 since July!

Gold finished flat after buyers tested 1204. Price remains range bound between 1192.40 and 1207.20. Price remains in short and longer term stalemate.

The USD spent most of the day under pressure, “The dollar rally needs fresh legs and that will have to come from either a big change in rate hike expectations or upside surprises in inflation and wage data,” said Lee Hardman, a currency strategist at MUFG in London.

Analysists are looking to the Fed to raise interest rates for the eighth time since late 2015, speculators had ramped up bets that interest rate differentials between the United States and other major economies, particularly Europe, will stretch wider. “We typically see this brief window before a U.S. rate meeting when hedge funds buy the dollar, and the trade war headlines are also aggravating that trend,” said Viraj Patel, an FX strategist at ING in London.

Risk tried to rally during the day, the EUR was given a boost by more hawkish comments from the ECB but buyers failed to hold the rally. The EUR finished flat to the USD and added 48 pips to the JPY. The GBP pulled back some of Friday’s losses adding 40 pips to the USD and 97 pips to the JPY. Despite higher oil prices and mixed USD sentiment, the USDCAD closed 31 pips higher. The USDJPY had a good session adding 36 pips. Buyers have returned to a solid high that starts from 112.86, this area ended the last rally in July. It’s a level to watch in the short term.

This morning the ASX200 is trading 10 pts lower and the USD is slightly lower to risk. Traders will be looking to the Bank of Japan when Governor Kuroda speaks at 15:35.

Good Trading from Eightcap

Sources; CNBC – All times are AEST

* The information provided here has been prepared by EightCap’s team of analysts. All expressions of opinion are subject to change without notice. Any opinions made may be personal to the author and do not reflect the opinions of EightCap.

In addition to the disclaimer on our website, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. EightCap accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.

Please note that past performance is not a guarantee of or prediction of future performance. This communication must not be reproduced or further distributed without prior permission.