After the strong risk positive reaction to the positive Trump/Xi meeting at the G20, markets are beginning to look a bit more cautious once more. The reason being further talk of US tariffs, this time turning to the EU. Chatter of the US imposing tariffs on $4bn of EU goods now, has tempered the reaction from news of the US and China negotiations already being underway. This gives a degree of support again for some of the classic safer havens, with the yen and gold finding support. Gold has been especially strong in recent weeks, but saw a sharp negative reaction to the risk positive G20. The more the talk of tariffs continues, this will help to cushion a corrective unwind on gold. Equities had a big boost yesterday, but there was a notable drift back on Wall Street into the close. Although futures are ticking for a positive open today, it will be interesting to see just how sustainable all these breakouts (on the likes of DAX and S&P 500) can be. The key question for traders to evaluate is how the development of the US protectionist policies on trade feed into the global economy and then into Fed monetary policy. Treasury yields held up relatively well compared to a sharp fall on Bund yields yesterday, with rate differentials driving EUR/USD lower. If this decline on Bund yields continues, then this fall on EUR/USD will have further to go. The Reserve Bank of Australia cut rates for a second month in a row to 1.00% (25bps cut to +1.00% exp, +1.25% last). The Aussie has reacted fairly positively, but any talk of further cuts from RBA Governor Lowe will surely weigh on the Aussie going forward.
Wall Street closed higher but well off the session highs yesterday with the S&P 500 +0.8% at 2964. Although US futures ticking mildly higher today +0.1%, Asian markets have been mixed overnight (Nikkei +0.1%, Shanghai Composite -0.1%). European markets are taking a slightly positive open with FTSE futures +0.3% and DAX futures +0.2% higher. In forex, there is very much of a consolidation across majors, with little real direction on USD, whilst despite the rate cut from the RBA the surprise outperformer is AUD. In commodities, the sharp sell-off on gold yesterday is rebounding by a few bucks today, whilst oil is consolidating again. Yesterday’s agreement by OPEC to extend production cuts by another nine months needs to also be agreed by OPEC+ today (i.e it needs Russia to give it the thumbs up).
There is little by way of key economic data on the calendar today. The UK Construction PMI for June is at 0930BST and is expected to improve marginally to 49.3 (from 48.6 in May). The UK construction sector comprises only around 7% of the economy, but having seen the PMI drop to a 14 month low last month it will be an interesting gauge for economic confidence as Brexit drags on.
Outside the data points, the OPEC bi-annual meetings continue in Vienna today with the OPEC+ meeting which includes other major oil producing nations such as Russia. The communique will again be of interest. Also be on the lookout for the comments of FOMC permanent voting member of the FOMC, John Williams (leans hawkish) who is speaking at 1135BST.
Chart of the Day – USD/CAD
Is another key low forming? The pair has been in retreat for the past few weeks, and has been testing the key January low at 1.3065 in the past two sessions. However, the support has held and a bullish candle yesterday from the low opens the prospect of a recovery. A decisive close higher from 1.3060 seems to be signalling a near term turnaround. It is early days for this rebound, but daily signals are beginning