Risk appetite has been relieved over the weekend as the G20 summit avoided the worst case scenarios, but also threw up some surprising positives too. The meeting between US President Trump and Chinese President Xi was never going to be ground breaking, however, the two maintain their apparent positive relationship and a potential deal is still possible. It could just be a matter of time. For now, no extension of any tariffs, but also no rollback. Risk appetite has been buoyed by this, but also in a very surprising move, President Trump also met with North Korean leader Kim Jong Un. Better geopolitical relations in Asia all round then. This could help to foster positive outcomes on trade and geopolitics, which means a move out of the safe haven assets that traders move to during times of elevated fear. Subsequently, this all adds up to sharp moves away from the safe haven currencies (yen and Swissy both under pressure). There has also been a jump in Treasury yields which is helping the dollar, especially against the euro. Stronger dollar, out of safety and yields higher also adds up to a correction on gold taking shape. Equity markets are also strongly higher, with major markets positioning for renewed upside breaks again. An unambiguously positive start to the week.
Wall Street closed solidly higher on Friday with the S&P 500 +0.6% at 2941, whilst the US futures have taken off again early today. This has certainly been felt through the Asian session, with the Nikkei +2.1% and Shanghai Composite +2.1%. European markets are also running with the move as the FTSE futures are +0.8% and a risk positive outlook helping DAX futures +1.5% higher. In forex, the safe havens are under pressure, with CHF and JPY both decisively underperforming. EUR is also under pressure, whilst USD is making ground across the major pairs. In commodities the big move is coming with gold which is sharply lower on dollar strength and risk positive outlook, losing -$24 (or -1.7%). Ahead of the OPEC meeting oil has jumped by over +2.5% on the expectation that production cuts will be extended.
The first trading day of the month is also key on the economic calendar, with the manufacturing PMIs for June. The final Eurozone Manufacturing PMI is at 0900BST and is expected to be unchanged from the flash at 47.8 (47.8 flash, 47.7 final May). The UK Manufacturing PMI is at 0930BST and is expected to remain in contraction territory at 49.3 (49.4 in May). The Eurozone Unemployment rate for May is at 1000BST and is expected to remain at 7.6% (7.6% in April). The US ISM Manufacturing is at 1500BST and is expected to slip back to 51.5 (down from 52.1 in May).
We are also on the lookout for the communique from the bi-annual OPEC meeting. As ever production levels are the key factor here. The meeting has been reportedly delayed until after the G20 to see the outcome of the US/China trade discussions which could impact the demand for oil and therefore OPEC’s supply outlook with a view to balancing the price.
Chart of the Day – DAX Xetra
DAX is set to make a decisive breakout above the key resistance band 12,435/12,460. The May rally tailed off just shy of the September 2018 key lower high at 12,458. This was again a barrier a couple of weeks ago. However, with a decisive bull candle on Friday, and strong open today the bulls far better positioned to hold a breakout this time around. The RSI has pulled higher into the 60s, whilst the Stochastics are crossing higher with renewed upside potential. This is all coming with the support formed at a six week pivot at 12,200 as a higher low. A closing breakout above 12,460 would imply an upside projection target of 12,625 as a minimum of the move, with the August high as resistance at 12,597. Breaking resistanc