News & Analysis

Dow breaks above 25K – Trade war on hold; Oil adds 1.4% to 3.5 year highs; USD drops EURUSD – Gold fightback from monthly lows

May 22, 2018 | Daily Market Outlook

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19:00 GBP Inflation Report Hearings

US markets – closed strongly higher on Monday as the US-China trade war fears abated. Treasury Secretary Steven Mnuchin said over the weekend the prospect of a trade war was “on hold” following an agreement to suspend tariff threats. The Dow Jones had been stuck below 25,000 during the US-China tariff issues. Once this shackle was removed the market move back above 25,000 for the first time since March.  The Dow Jones closed 298.20 points higher – The S&P500 added 20.04 and the NASDAQ added 39.70.

This should offer investors some relief over trade concerns,” said Bruce Bittles, chief investment strategist at Baird. “However, we expect that trading jitters will continue as the U.S. still has plans to apply steel and aluminium tariffs on the European Union by month-end.”

Mnuchin told CNBC on Monday the U.S. has made “very meaningful progress” with China on trade matters. “Now it’s up to both of us to make sure that we can implement it,” Mnuchin told “Squawk Box.” Trump backed the deal, tweeting: “China has agreed to buy massive amounts of ADDITIONAL Farm/Agricultural Products – would be one of the best things to happen to our farmers in many years!”

In corporate news – General Electric will merge its transportation business with Wabtec a rail equipment maker, in a deal worth $11.1 billion. GE shares rose 2 percent. Micron jumped 3.3 percent after the company raised its guidance because of a “healthy” semiconductor industry.

Europe – had a lighter session as some markets observed bank holidays. The FTSE added 80.38 in a strong session and the CAC added 23 points. US-China trade war developments were a positive driver in Europe. French Finance Minister Bruno Le Maire warned Sunday that Rome needs to respect European spending rules. The recent political turmoil looks to stabilizing in Italy as a power-sharing agreement between the left-wing Five Star Movement and the right-wing Lega.

In earnings, Ryanair reported a 10 percent increase in full-year profit after tax. The company reiterated Brexit concerns and reported a pessimistic outlook for 2019.

Oil – Venezuela took the spotlight last night, the US has advised they may issue sanctions against the OPEC member. Venezuela’s socialist President Nicolas Maduro faced widespread international condemnation on Monday after his re-election in a weekend vote his critics denounced as a farce. “The spectre of U.S. oil sanctions on the embattled Latin American producer now looms large as Washington strives to tighten the financial noose,” PVM Oil Associates strategist Stephen Brennock said

US shale production remains a worry; output from U.S. shale and key OPEC producers could end the rally, BP Chief Executive Bob Dudley told Reuters. Dudley said he expected a flood of U.S. shale and a possible reopening of OPEC taps to cool oil markets after crude rose above $80 a barrel last week.

Dudley said he saw oil prices falling to between $50 and $65 because of surging shale output and OPEC’s capacity to boost production to cover a potential shortfall in Iranian supplies owing to U.S. sanctions.

USOUSD closed 117 cents higher hitting new 3.5 years highs at $72.57

Forex – The USD met sold selling late into the London session last night. Easing trade war fears and a slight pullback in T note yields looked to influence the Dollar. The Euro fought back with vigor to the USD as Italy’s political uncertainty stabilized. The EURUSD closed 25 pips higher after plunging 50 pips to new monthly lows. The USDCAD failed once again to close above 1.2885, price closed 88 pips lower. The AUDUSD jumped adding 60pips, closing at .7578. The JPY continued to trade south, it dropped to most of the majors only making ground to the GBP. The AUDJPY jumped by 90 pips closing above 84.00. Traders have not seen a close above that level since February.

Gold like the EURUSD spent most of the day in the red. Sellers set new monthly lows at 1281.99 before the USD fade got going and buyers returned. Price finished the session close to $2.50 higher after trading over $8 lower. Traders should remain cautious as the current price action still remains in a counter-trend pattern.

Good trading from Eightcap.

Sources; CNBC All times are AEST

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