News & Analysis

May 21, 2018 | Daily Market Outlook

Upcoming high impact news:

Bank Holiday’s;
Switzerland

France
Germany
Canada

US markets – closed mixed on Friday as US-China trade relations kept traders on edge. The Dow Jones added 1.11 – The S&P500 lost 7.16 and the NASDAQ lost 28.13 points. In relatively quieter trade focus continued the two largest economies in the world began the second round of trade talks.

“All of the news we’re getting on trade is incremental, unfortunately,” said Art Hogan, chief market strategist at B. Riley FBR. “Unless you’re in the room, it’s hard to get a feel for how these negotiations are going.” reports emerged saying China would offer the U.S. a $200 billion trade surplus cut. Those reports, however, were quickly denied by a Chinese ministry spokesman on Friday. This morning Treasury Secretary Steven Mnuchin said the Trump administration is putting its trade war with China “on hold” after two days of talks in Washington that he said had produced agreement on increased Chinese purchases of American products and measures to make it easier for U.S. companies to operate in China. We have seen solid higher opening gaps on stock futures and indices this morning.

Yields continue to push higher, a worry for traders and future interest rates rises. The 10-year yield briefly hit 3.128 percent, its highest level since July 8, 2011, when the note yielded as high as 3.184 percent. The 30-year bond yield also briefly hit a new high; it topped 3.2640 percent overnight, its highest level since Oct. 3, 2014, when the 30-year yielded as high as 3.276 percent.

Europe – equity markets drifted lower on Friday, sharp losses in Glencore and US-China trade talks making investors and traders nervous. The FTSE lost 9.18 – the DAX 36.89 lower and the CAC closed 7.40 points lower. Telecoms had plummeted by almost 2 percent at the end of trade. Basic resources also performed poorly, shares finishing the day off by 1.2 percent. The banking sector also nearly 1 percent lower by Friday’s close, with Italian banks UBI Banca, BPER Banca and Banco BPM leading the declines trading over 6 percent lower.

Glencore shares tanked, closing 4.4 percent lower. At one point trading 7 percent earlier in the afternoon! Sellers set off by a report that said that the mining firm may face investigation by the U.K.’s Serious Fraud Office over its operations in the Democratic Republic of Congo.

This afternoon/tonight, trade could be lighter as France, Germany and Switzerland observe bank holidays.

Oil – ended 21 cents lower on Friday but finished off lows. Traders were looking ahead to Venezuela’s election on Sunday, which could then trigger additional U.S. sanctions. Saudi Arabia makes assurances on oil supplies after India complains about rising prices.

“Oil prices are in overbought territory, which has prompted some profit taking in today’s trading session ahead of the weekend,” said Abhishek Kumar, a senior energy analyst at Interfax Energy’s Global Gas Analytics in London.

Price is trading higher this morning, buyers have added 46 cents and have broken $71.80. The market at this point looks close to confirming a new leg higher. 4H chart show’s $72.10-$72.30 ass the next band of potential resistance.

Forex – Friday saw a new jump from the USD. The USDCAD added 77 pips. The USDJPY hit 111.08 before trimming gains. Risk finished lower, the GBP and EUR hitting new weekly lows. The AUD fought back the hardest finishing flat at .7510.

Shaun Osborne, chief FX strategist at Scotiabank in Toronto, however, believes the dollar’s rally was more about extreme short positioning that needed to unwind. “We continue to view dollar gains as a temporary issue reflecting excessive short positioning and concerns European growth momentum has slowed and may impair the ECB’s (European Central Bank) willingness to move away from quantitative easing later this year,” Osborne said.

This morning the USD opened stronger, but we’ve seen risk fighting back. The AUDUSD is in the black and the GBP and EU are flat.

Gold held firm on Friday finding support from the uncertainty in Italy. Buyers ignoring USD strength to hold $2.70 in gains. This morning we have seen a test lower, while 1288.50 can continue to hold as support buyers look to be setting up a line atm.

Good trading from Eightcap.

Sources; CNBC All times are AEST

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