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Market panorama. 4 June 2018

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I. Market focus:

The new week in the foreign exchange market began with the strengthening of the Australian dollar, which rose in response to strong data on retail sales and corporate profits. By the beginning of the European session, the Australian dollar has refreshed its last month’s high against the U.S. dollar, and its upward trend is likely to continue to in the near future.

Euro rose in the morning as political risks in the Eurozone decreased due to the formation of the government in Italy and change of leadership in Spain. Italy’s new government, led by Giuseppe Conte, was sworn in on Friday. It was formed by a coalition of two political powers - the populist Five Star Movement and right-wing League party, which won the parliamentary majority three months ago. At that time, the Spanish parliament voted in favor of a no-confidence motion against Prime Minister Mariano Rajoy following a corruption scandal involving dozens of people linked to the ruling People's Party. The leader of the Socialist Party Pedro Sanchez became the new prime minister of Spain. But the events in Italy and Spain did not raise much optimism among market participants. The long-awaited creation of the government in Italy averted the threat of an early parliamentary election but raised questions about the ability of the new executive to compromise its election promises (higher social spending and lower taxes) with the EU fiscal rules that impose strict limits on the member states. As for Spain, it is expected that the new prime minister may face hurdles while forming the ruling majority because of the heterogeneity of the coalition that voted to oust his predecessor. Therefore, the easing of political tensions in the Eurozone may turn out to be temporary, which significantly limits the growth of the single currency.

Monday’s session will not be very busy with important data releases and events. In the morning, Sentix's measure of Eurozone investor confidence and the index on activity in the UK’s construction sector will be published. Both reports will be released at 08:30 GMT. In the second half of the day, attention should be paid to the U.S. data on factory orders (14:00 GMT) and speech by the Bank of England (BoE) representative Silvana Tenreyro (17:00 GMT).


II. The market highlights are:

  • The Labor Department announced on Friday that nonfarm payrolls increased by 223,000 in May after a downwardly revised 159,000 gain in the prior month (originally an increase of 164,000). According to the report, employment rose in several industries, including retail trade (+31,000 jobs), health care (+29,000), and construction (+25,000). Meanwhile, the unemployment rate fell to 3.8 percent in May from 3.9 percent in April. That was the lowest rate since April 2000. Economists had forecast 189,000 new jobs and the jobless rate to stay at 3.9 percent. The labor force participation rate decreased by 0.1 percentage point over the month to 62.7 percent, while hourly earnings for private-sector workers rose by 0.3 percent m-o-m (8 cents) to $26.92, after gaining 0.1 percent m-o-m in April. Economists had forecast labor force participation rate to come in at 62.6 percent and a 0.2 percent advance in the average hourly earnings. The average workweek was unchanged m-o-m at 34.5 hours in May, in-line with economists’ forecast.

  • A report from Institute for Supply Management (ISM) revealed on Friday the U.S. manufacturing sector expanded in May at a faster pace than in April. The ISM's index of manufacturing activity came in at 58.7 percent last month, up 1.4 percentage points from the unrevised April figure of 57.3 percent, exceeding economists' forecast for a 58.1 percent reading. A reading above 50 percent indicates expansion, while a reading below 50 percent indicates contraction. The monthly gain by the headline index was primarily attributable to faster growth in new orders index (+2.5 percentage points m-o-m to 63.7 percent in May), the production index (+4.3 percentage point m-o-m to 61.5 percent) and the employment index (+2.1 percentage points m-o-m to 54.2 percent). Of the 18 manufacturing industries, 16 reported growth in May. Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee said, “The past relationship between the PMI and the overall economy indicates that the PMI for May (58.7 percent) corresponds to a 4.8-percent increase in real gross domestic product (GDP) on an annualized basis.”

  • The weekly report from Baker Hughes, which was released on Friday, showed that the number of active U.S. rigs drilling for oil rose by two to 861 during the week ended June 1. That was the highest level since March 2015. In the prior week, the oil-rig count surged by fifteen. Meanwhile, the total active U.S. rig count, which includes oil and natural-gas rigs, rose by one to 1,060, as the gas rig count decreased by one to 197 last week, and the miscellaneous rig count remained at 2. The U.S. rig count is up 144 rigs from this time last year when it stood at 916.

  • The Australian Bureau of Statistics (ABS) reported on Monday that Australia’s retail sales rose 0.4 percent m-o-m in April, following an unrevised flat m-o-m result in March. Economists had forecast retail sales would increase 0.2 percent m-o-m in April. According to the ABS, cafes, restaurants and takeaways (+1.3 percent m-o-m) led the rises, followed by other retailing (+0.9 percent m-o-m), household goods retailing (+0.7 percent m-o-m) and food retailing (+0.3 percent m-o-m). The gains, however, were partially offset by falls in clothing, footwear and personal accessories (-0.8 percent m-o-m) and department stores (-0.9 percent m-o-m).

  • Another report from the ABS revealed that the Australian companies’ gross operating profits surged 5.9 percent q-o-q in the first quarter of 2018, following a revised 2.8 percent q-o-q increase in the fourth quarter of 2017 (originally a 2.2 percent q-o-q advance). That marked the strongest rise since the fourth quarter of 2016. Economists had expected a 3.0 percent q-o-q gain. In y-o-y terms, corporate operating profit boosted by 5.8 percent in the fourth quarter.


III. Market Situation
Currency Market
The currency pair EUR/USD traded moderately higher, as the euro was helped by reports about the formation of the government in Italy and change of leadership in Spain. Meanwhile, the acceleration of consumer price growth in the Eurozone in May was another argument in favor of the ECB's decision to make some changes to its views about the future monetary policy at its June meeting. As for today's session, investors will pay attention to the Sentix's measure of Eurozone investor confidence and the U.S. data on factory orders. Later this week, the focus of market participants will be on the Eurozone’s final data on GDP for the first quarter and the PMIs. Resistance level - $1.1829 (high of May 22). Support level - $1.1511 (low of May 29).

The currency pair GBP/USD rose slightly, reaching its high of May 25, as risk appetite improved and the U.S. currency demonstrated the broad weakness. Investors are awaiting the data on the release of the index on activity in the UK’s construction sector for May and the comments of the Bank of England (BoE) representative Silvana Tenreyro. According to economists’ forecast, the indicator fell to 52.0 points in May from 52.5 points in April. Overall, it is expected that the traders will be guided today by the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.3420 (high of May 24). Support level - $1.3204 (low of May 29).

The currency pair AUD/USD rose significantly, hitting its high of April 24, underpinned by increased risk appetites as well as strong Australian data on retail sales and corporate profits. The Australian Bureau of Statistics (ABS) reported that Australia’s retail sales rose 0.4 percent m-o-m in April, following an unrevised flat m-o-m result in March. Economists had forecast retail sales would increase 0.2 percent m-o-m in April. Meanwhile, another report from the ABS revealed that the Australian companies’ gross operating profits surged 5.9 percent q-o-q in the first quarter of 2018, following a revised 2.8 percent q-o-q increase in the fourth quarter of 2017 (originally a 2.2 percent q-o-q advance). That marked the strongest rise since the fourth quarter of 2016. Economists had expected a 3.0 percent q-o-q gain. In y-o-y terms, corporate operating profit boosted by 5.8 percent in the fourth quarter. Resistance level - AUD0.7682 (high of April 23). Support level - AUD0.7513 (low of June 1).

The currency pair USD/JPY traded slightly higher, due to the weakening demand for safe-haven assets. In addition, investors digested the statements by the Bank of Japan (BoJ) governor Haruhiko Kuroda. He noted that inflation had recently been weak despite a steady economic growth, indicating the regulator's readiness to maintain its hefty stimulus program. Kuroda also expressed concern over the damage escalating trade tensions could inflict on the global growth but reiterated his view that the world’s third-largest economy was on track for a moderate expansion. Resistance level - Y111.39 (high of May 21). Support level - Y108.11 (low of May 29).

Stock Market

Index

Value

Change

S&P

2,734.62

+1.08%

Dow

24,635.21

+0.90%

NASDAQ

7,554.33

+1.51%

Nikkei

22,475.94

+1.37%

Hang Seng

30,972.04

+1.57%

Shanghai

3,091.19

+0.52%

S&P/ASX

6,025.50

+0.59%


U.S. stock indexes closed solidly higher on Friday, as the latest monthly employment report pointed to strength in the U.S. economy and political tensions in Europe eased. The Labor Department announced that nonfarm payrolls increased by 223,000 in May after a downwardly revised 159,000 gain in the prior month (originally an increase of 164,000). Meanwhile, the unemployment rate fell to 3.8 percent in May from 3.9 percent in April. That was the lowest rate since April 2000. Economists had forecast 189,000 new jobs and the jobless rate to stay at 3.9 percent. The labor force participation rate decreased by 0.1 percentage point over the month to 62.7 percent, while hourly earnings for private-sector workers rose by 0.3 percent m-o-m (8 cents) to $26.92, after gaining 0.1 percent m-o-m in April. Economists had forecast labor force participation rate to come in at 62.6 percent and a 0.2 percent advance in the average hourly earnings. The average workweek was unchanged m-o-m at 34.5 hours in May, in-line with economists’ forecast.

Asian stock indexes closed higher on Monday, after a strong lead from Wall Street on Friday and the U.S. president Donald Trump’s announcement about the resumption of plans for a summit with North Korea’s leader Kim Jong Un on June 12.

European stock indexes are expected to trade higher in the morning trading session.


Bond Market
Yields of US 10-year notes hold at 2.92% (+2 basis points)
Yields of German 10-year bonds hold at 0.40% (+1 basis points)
Yields of UK 10-year gilts hold at 1.28% (+1 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in July settled at $65.78 (-0.05%). The crude oil prices fell slightly, as market participants digested the latest data from Baker Hughes, which showed that the number of active U.S. rigs drilling for oil rose by two to 861 during the week ended June 1. That was the highest level since March 2015. In the prior week, the oil-rig count surged by fifteen. Meanwhile, the total active U.S. rig count, which includes oil and natural-gas rigs, rose by one to 1,060, as the gas rig count decreased by one to 197 last week, and the miscellaneous rig count remained at 2. The U.S. rig count is up 144 rigs from this time last year when it stood at 916.

Gold traded at $1,291.50 (-0.14%). Gold prices fell slightly, as the demand for safe-haven assets retreated.  Meanwhile, the drop in gold prices was limited by the dynamics of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell 0.14 percent to 94.06. Since gold prices are tied to the dollar, a weaker dollar usually makes the precious metal cheaper for holders of foreign currencies.

IV. The most important scheduled events (time GMT 0)


08:30

Eurozone

Sentix Investor Confidence

08:30

United Kingdom

PMI Construction

09:00

Eurozone

Producer Price Index

14:00

U.S.

Factory Orders

17:00

United Kingdom

MPC Member Tenreyro Speaks

23:30

Australia

AIG Services Index

23:30

Japan

Household spending


Market Focus

  • U.S industrial production rose 0.6 percent in November after moving down 0.2 percent in October
  • UK PM May: Was Crystal Clear About Assurances Needed On Brexit
  • U.S retail sales were $513.5 billion in November, an increase of 0.2 percent from the previous month
  • Eurozone Composite PMI fell from 52.7 in November to 51.3 in December, its lowest since November 2014
June 2018
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All posted material is a marketing communication solely for informational purposes and reliance on this may lead to loss. Past performance is not a reliable indicator of future results. Please read our full disclaimer.

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