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Equities mixed, U.S shares end mainly lower – Europe rallies; Oil smashed key players to increase output; USDCAD hits 1.2987

May 28, 2018 | Daily Market Outlook

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US markets – finished mixed on Friday, geopolitical issues in Europe and Asia weighted. Earnings helped to keep markets stable. North Korea expressed continued interest to meet with President Trump despite the news he has cancelled the proposed June meeting. The Dow Jones was dragged lower by continued losses in energy stocks. Crude oil plummeted on Friday. The NASDAQ edged higher on Friday, gains in Netflix and Apple offset losses in Facebook and Cisco. The three main indexes ended Friday mixed; the Dow Jones lost 58.67 points – the S&P500 ended 6.43 pts lower and the NASDAQ closed 9.43 pts higher.

The 10-year dipped further on Friday; “I think we’re facing a situation akin to that in 2008 when we had the Fed saying the economy was very strong,” said Komal Sri-Kumar, president of Sri-Kumar Global Strategies. “Despite the fiscal stimulus from the tax cuts, the optimism is not reflected in the bond market.”

“The other thing I would say concerns the Fed minutes – the Fed blinked. That was the beginning of the downturn this week,” he added. “The Fed tried to make up for it up by saying that they would allow inflation to rise above its target … [but] the Fed never admits to an error.”

Foot Locker added to the optimism on Friday. The athletic shoe retailer beat expectations, posting adjusted earnings per share of $1.45 versus expectations of $1.24 per share. It posted revenue of $2.03 billion, also ahead of estimates. The company’s stock closed 20 percent higher Friday.

Europe – shook off continuing political uncertainty in Italy to close mainly higher on Friday. Trump and North Korea continuing dialogue for future summit gave traders optimism.

Italy’s designated Prime Minister Giuseppe Conte, whose credentials have been hit with scrutiny, met with Bank of Italy Governor Ignazio Visco on Friday. Italian short-dated bond yields soared as uncertainty over the country’s incoming anti-establishment government continued. The two-year note rose as high as 35 basis points on Friday. Italy’s FTSE MIB benchmark, meanwhile, was down 1.54 percent. This morning the situation has worsened with news the prime minister has given up on hopes of forming government, this could lead to new elections.

Europe’s travel and leisure stocks led the gains Friday while banking stocks were among the worst performers.

The FTSE closed 13.54 pts higher – The DAX added 82.92 and the CAC edged lower by 5.89 pts.

Oil – plunged on Friday losing $2 a barrel as output worries intensified. Saudi Arabia and Russia said they were ready to ease supply curbs that have pushed crude prices to their highest since 2014.

“The debate about a possible relaxation of the production restrictions should preclude any renewed price rise,” Commerzbank analysts said. “The $80 mark is likely to pose an obstacle that is difficult to overcome because it would significantly raise the probability of a production increase.”

USOUSD dropped 314 cents in Friday’s session! This morning after a brief fightback, sellers have resumed the sell-off, price trading 160 cents lower.

Forex – the USD index hit its highest point since mid-November on Friday. Oil dragged on commodity currencies, Spain and Italy dragged the Euro all supporting the USD rally. The USDCAD jumped on Friday boosted by a collapse in the oil price. The $/C hitting March highs. Buyers adding 27 pips this morning further testing March highs. The next key level for buyers to test is 1.3000.

Spain’s socialist leader Pedro Sanchez on Friday said his party would call a snap election if it won the motion it put forward against Prime Minister Mariano Rajoy over a graft case involving members of his People’s Party. “Risk premia are rising across the euro area,” said Schamotta. “Market participants are taking the threat of divisions in the euro area more seriously than they have in a long time.”

US Core Durable Goods Orders increased on Friday beating market expectations, this suggested that business spending on equipment was picking up after slowing down at the end of the first quarter.

The JPY continued to be in favour in the fight to safety, ending the week higher to the risk majors. This morning risk gapped higher to the JPY but selling has returned. At this point, the majors are all trading lower. Gold started higher on Friday but lost traction to the USD, price finished close to $3 lower.

Good trading from Eightcap.

Sources; CNBC All times are AEST

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