Here are the latest developments in global markets:
FOREX: The US dollar index is 0.1% higher on Wednesday ahead of the release of the minutes from the May Fed meeting, building on the modest gains it posted yesterday. Meanwhile, the Japanese yen rebounded yesterday and is on the front foot today, advancing 0.5% against the dollar and 0.6% versus the euro, as some “pessimistic” comments from US President Trump on trade dispelled expectations that the recent negotiations had borne fruit.
STOCKS: US markets closed lower yesterday, as some less-than-optimistic comments by President Trump regarding the US-China trade talks weighed on risk appetite. The Dow Jones led the way lower, falling by 0.72%, while the S&P 500 and the Nasdaq Composite declined by 0.31% and 0.21% respectively. Futures tracking the Dow, S&P, and Nasdaq 100 are all currently pointing to a lower open today, though it should be noted that the forthcoming direction in these indices may be largely dictated by the Fed minutes later today. The negative sentiment rolled over into Asian markets as well, with Japan’s Nikkei 225 and Topix falling by 1.18% and 0.68% correspondingly. In Hong Kong, the Hang Seng plunged 1.35% on its first day back from a holiday. In Europe, futures tracking all the major indices were a sea of red, pointing to a much lower open today.
COMMODITIES: Oil prices corrected lower yesterday and the pullback is continuing today, with WTI and Brent crude being down by 0.3% and 0.5% respectively. While there was no clear catalyst for the declines, they may be owed to a combination of deteriorating market sentiment, the latest advance in the US dollar, as well as the smaller-than-expected drawdown in the private API crude inventory data yesterday. In precious metals, gold prices are down today, but by less than 0.1%, trading not far above the $1,292 per ounce mark. The yellow metal continued to overlook discouraging comments on the trade outlook yesterday, in contrast to other haven assets like the yen, which surged. That said, gold has been quite responsive to movements in the dollar lately, so it could well react to the release of the FOMC minutes later today.
Major movers: Yen rebounds as Trump’s “pessimism” saps risk appetite
US President Trump expressed his dissatisfaction over the recent US-China trade negotiations yesterday, indicating he is “not really” pleased with the results so far. His comments came in stark contrast with those of Treasury Secretary Mnuchin a few days ago – who had implied that the talks had borne fruit – and likely reignited speculation that the “trade war” theme may still have some legs to run. The result was a deterioration in risk sentiment, causing US equity indices to cross into negative territory and triggering safe-haven flows into the Japanese yen. Funnily enough, these signals came just hours after China declared it will reduce the import tariff it imposes on cars to 15%, from 25% previously.
Further sapping risk appetite were some remarks from Trump that cast doubt on whether the widely-touted summit with North Korea will ever take place. He said there is a “very substantial chance, it won’t work out”, pushing back on expectations for a swift resolution of the Korean dispute.
As for the dollar, while it’s down by 0.5% against the yen and 0.1% against the Swiss franc respectively today, it’s higher against all its other major counterparts. Today, investors will scrutinize the Fed minutes from the May meeting for any insights on whether policymakers are willing to allow inflation to overshoot the 2% target without raising rates for a while, something they teased in the statement.
In the antipodeans, aussie/dollar and kiwi/dollar are both down by 0.5% today, following a miss in Australian construction data and some dovish signals from the RBNZ overnight respectively. In emerging markets, the Turkish lira continues to break record lows, as investors remain concerned the central bank may not act decisively and raise rates as much as needed to rein in double-digit inflation.
Day ahead: Eurozone flash PMIs, UK inflation and Fed minutes on the horizon
Wednesday is a busy day in terms of data releases, featuring important figures from the US, the eurozone and the UK, as well as Fed minutes pertaining to the central bank’s latest monetary policy meeting.
At 0800 GMT, the eurozone will be on the receiving end of flash PMI numbers for the month of May. All three data points – the manufacturing, services and composite PMI – are expected to comfortably stand above the 50 expansion/contraction level, though yet again point to further easing of activity. Earlier in the day (0730 GMT), Germany, the eurozone’s largest economy, will see the release of its respective PMI figures, while France’s numbers were made public at 0700 GMT; euro/dollar fell upon the release (the services PMI negatively surprised and the manufacturing PMI surprised to the upside).
UK inflation figures for April are due at 0830 GMT. Headline CPI is anticipated to have held steady at 2.5% y/y, and to have grown at a faster monthly pace relative to March (0.5% vs 0.1%). Core CPI, which excludes volatile items from its calculations, is forecast to edge down to 2.2% y/y, from 2.3% in March. A data beat is projected to increase the odds for a Bank of England rate hike sooner rather than later and consequently support sterling.
Also at 0830 GMT, the UK will see the release of data on producer prices and retail price inflation for April, while May’s Confederation of British Industry Distributive Trades figures are due out at 1000 GMT.
Markit’s May flash manufacturing PMI out of the US is slated for release at 1345 GMT. The measure is expected to remain constant at 56.5. A little later (1400 GMT), new home sales data for April will be made public out of the US. A 2.0% decrease in sales is anticipated, after a 4% rise in March.
The European Commission’s Directorate General for Economic and Financial Affairs will release its May flash consumer confidence figures at 1400 GMT; consumer morale is anticipated to remain in positive territory.
Market participants’ attention will again next turn to the US, as the official record of the Federal Reserve’s meeting in early May will be made public at 1800 GMT. That meeting left traders speculating that FOMC policymakers are willing to accept an inflation overshoot without accelerating their tightening cycle. Any communication to the contrary is likely to boost the US currency.
In energy markets, EIA weekly data on US crude inventories due at 1430 GMT may give short-term direction to oil prices.
In equities, Ralph Lauren and Tiffany & Co are among companies releasing quarterly results today; both will be reporting before the US market open.
In terms of policymakers’ appearances, Riksbank Governor Stefan Ingves and the Head of the Financial Stability Department Olof Sandstedt will be attending a press conference at 0900 GMT, after the release of the Bank’s relevant report on financial stability at 0730 GMT. RBA Governor Philip Lowe will be giving a speech at the Australia-China Relations Institute at 0805 GMT, while Minneapolis Fed President Neel Kashkari (non-voting FOMC member in 2018) will be participating in a Q&A session at 1815 GMT.
Meanwhile, trade (US-China deliberations) and geopolitical (for example a meeting between Trump and North Korea’s Kim) developments remain on the background. In this respect, US Secretary of State Mike Pompeo will be meeting the Chinese Foreign Minister Wang Yi at 1800 GMT, while he will also be seeing the German and Japanese foreign ministers on Wednesday. Brexit is also in focus, with Brexit ministers Steve Baker and Suella Braverman appearing in front of the Brexit committee on progress of EU exit talks at 0800 GMT.
Technical Analysis: GBPUSD hits 5-month low; looking oversold
GBPUSD posted a five-month low of 1.3372 earlier on Wednesday. The negatively-aligned Tenkan- and Kijun-sen lines are projecting a bearish short-term picture for the pair. A note of caution is warranted though as the Chikou Span is signaling an oversold market.
Worse-than-anticipated UK inflation numbers are likely to push the pair further down. Support in this case might come around the 1.33 round figure; the region around this also encapsulates the seven-month low of 1.3301 from mid-December.
A UK CPI beat on the other hand is anticipated to boost the pair. Resistance to advances could be met around the current level of the Tenkan-sen at 1.3490, and before that around the 1.34 handle which failed to act as support earlier in the day and might instead provide resistance.
US data, and perhaps most importantly the release of the FOMC meeting minutes, have the capacity to move GBPUSD as well.
