European stocks and US futures were slightly higher following small gains in Asia. Crude prices rose after the OPEC+ decided to extend output cuts by 1 month, while gold rebounded after its third weekly down close in as many weeks. It has been a slow start for FX, with the dollar rising against the likes of the pound and euro and falling slightly against the yen.
Over the weekend, the OPEC+ decided to extend the 9.7m barrels per day output cuts by 1 month, until the end of July. The agreement for a one-month extension to output cuts was already priced in, which is why prices have been fairly stable today. It appears like the market is pleased to see there is a stricter approach to making sure that members comply, with countries such as Nigeria and Iraq, which exceeded production quotas in May and June, have agreed to compensate with extra cuts in July to September. So, Brent oil may still end up reaching $45 in the coming days after all despite the extension being just 1 instead of 2 more months. But it will be a struggle given the uncertainty over the strength of the rebound in demand.
Meanwhile momentum in the global stock market rally is continuing to crush the bears. In recent weeks, the markets have enjoyed one of their best periods ever, as the ECB decided to extend its bond-buying programme at a time when we have seen a decreasing Covid-19 fatality rate and re-openings of major economies. Friday’s US jobs report beat the most optimistic of forecasts, which further fuelled bullish optimism as it boosted expectations for a speedy recovery from the coronavirus crisis. Investors have so far ignored increasing geopolitical risks and a terrible profit outlook.
However, the latest macro pointers released today, especially from the Eurozone have dampened expectations for a speedy recovery. German Industrial Production slumped 17.9% m/m in April vs. -16.0% expected. On top of this, the Sentix Investor Confidence came in at -24.8 vs. -22.0 expected, even if it improved from -41.8 last. These figures weighed on the euro which saw the EURUSD drop to test key short-term support at around 1.1270.
Chinese trade surplus hit record in May as exports fell 3.3%, which was less than anticipated, while imports slumped 16.7% from a year earlier.
There are no major US macro data to look forward to in the afternoon. It will be interesting to see what the S&P 500 will do as it has reached THIS key level on the daily:
There are two scenarios we are look at around the 3214/5 resistance.
A clean break and hold above this would be bullish. In this case, we would look for the buyers to later defend the potential rounded re-test of this 3214/5 level.
A brief break and move back below 3214/5 would be bearish. In this case, we would look for the sellers to later defend the potential rounded re-test of this 3214/5 level, leading to a potential drop to the next support at 3130.
The current trend is bullish, but with the index up in a straight line we could see some profit-taking later on in the session, creating some short-term opportunities for the bears.
