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Dow makes it 8 in a row; Oil recovers; USD makes late fightback

May 15, 2018 | Daily Market Outlook

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US markets – continued their rallies on Monday, the Dow making in 8 days in a row. The Dow Jones closed 68.24 pts higher – the S&P500 closed 2.41 pts higher and the NASDAQ closed 8.43 points higher. United Health and Walmart fuelled the Dow while health care, energy and materials supported the S&P500.

Tensions between the world’s largest economies look to be easing and investors have been taking this as a positive. President Donald Trump pledged Sunday to help Chinese technology firm ZTE Corp to “get back into business, fast.” The Presidents tweet “President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!” Trump and Kim Jong-un are scheduled to meet in Singapore on June 12. The encounter between the two leaders would mark the first-ever meeting between a U.S. president and a North Korean leader.

Europe – traded mainly lower on Monday, the DAX losing 25.33 – the FTSE lost 13.57 and the CAC lost 1.26 points. Traders and Investors focused on US-China relations the Italian situation and energy prices. Gambling firms Paddy Power Betfair and William Hill were boosted by news of a U.S. Supreme Court ruling that would allow for states to legalize sports betting. Financial services stocks fell the furthest on Monday, closing 1.1 percent lower. Close behind were telecoms, 0.9 percent lower. The U.K.’s BT was among the poorest performing companies within the sector, down 2.4 percent.

Italy continues to be in focus as two anti-establishment parties could form the next government. The left-wing Five Star Movement (M5S) and the right-wing Lega met the Italian president Sergio Mattarella Monday afternoon. The head of Five Star Movement, Luigi Di Maio, asked the president for “a few more days” in order to reach an agreement on who will head the new coalition.

Oil – recovered on Monday, closing 70 cents higher at $71.14 after testing $70.90 to the downside during the session. OPEC reported that the global oil glut has been virtually eliminated, while U.S. crude’s discount to global benchmark Brent widened to more than $7, its deepest in nearly five months. “You have the threat that a high enough price will start to activate the 7,700 drilled but uncompleted wells in the lower 48 states,” said Walter Zimmerman, chief technical analyst at ICAP TA. “And meanwhile, if Iranian crude is really taken off the water, it’s going to impact Brent much more than its going to impact WTI,” Zimmerman said.

Yesterday was a recovery day, but the candle body was an inside bar and buyers still have $71.50 to beat to show this trend is going to continue north.

Forex – the USD parred earlier loses to finish higher on Monday, but there’re some concerns emerging. Double deficits, “Barring a significant, and unlikely, pickup in productivity, a persistent USD rally is unlikely as the twin deficits crowd out private investment by raising borrowing costs,” Hans Redeker, global head of currency strategy at Morgan Stanley in London. Overnight risk reversed gains to finish lower to the USD. The GBP was the only risk major that held its gains.

The JPY continued to weaken closing lower to the majors, the EURJPY was the best performing during the session trading 95 pips higher at one point. GOLD tested 1322.42 at its session high before succumbing to seller pressure. Buyers put up a good fight to hold price around 1321 before sellers really stepped up sending the yellow metal $4.80 lower.

Good trading from Eightcap.

Sources; CNBC All times are AEST

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