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Market panorama. 8 June 2018

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I. Market focus:

The main event of the morning session in the financial markets was the release of China's trade data. The PRC’s trade surplus in May missed economists’ expectations and was below the April result, but the growth rates of both exports and imports were much bigger than the median forecasts suggested. At the same time, the growth rate of imports was two times higher than that for exports, resulting in lower than expected trade surplus.

Markets are waiting for the G7 summit, which will be held in Canada on June 8-9. It is expected that the summit will be rather complicated because of disagreements between the U.S. president and the leaders of other participating countries, due to Trump’s decisions to impose tariffs on steel and aluminum imports and to withdraw the U.S. from the Iran nuclear deal, as well as the uncertainty over the U.S. involvement in the Paris Agreement on climate change. The fact that the talks will not be easy has already been confirmed by German Chancellor Angela Merkel and Canadian Prime Minister Justin Trudeau; French President Emmanuel Macron has signaled that he will not sign a joint G7 statement until progress is made on the key issues mentioned above. Donald Trump, in turn, confirmed the fears of Merkel, Trudeau and Macron, accusing France and Canada of high duties for the United States ahead of the summit. In addition, his administration announced that the U.S. president will leave the G-7 summit in Canada earlier than planned. Since Trump's position is unlikely to change, it is expected that this summit may end without a traditional joint statement of the G7 leaders.

Though the G7 summit will dominate the news flow today, the markets will also pay attention to other scheduled events, the most important of which will be the Canadian housing market data (12:30 GMT).


II. The market highlights are:

  • The data from the Labor Department reported on Thursday the number of applications for unemployment benefits unexpectedly fell last week, pointing to a tight labor market conditions. According to the report, the initial claims for unemployment benefits decreased 1,000 to 222,000 for the week ended June 1. Economists had expected 225,000 new claims last week. Claims for the prior week were revised upwardly to 223,000 from the initial estimate of 221,000. Meanwhile, the four-week moving average of claims rose 2,750 to 225,500 last week.

  • The final data from the Cabinet Office showed on Thursday the Japanese gross domestic product (GDP) contracted as initially estimated in the first quarter of 2018, as a drop in household consumption offset an advance in business spending. According to the revised data, Japan’s economy shrank 0.2 percent q-o-q in the first quarter, following a 0.1 percent q-o-q gain in the prior quarter. That marked the first contraction in Japan’s GDP since the fourth quarter of 2015. Economists had forecast a 0.1 percent q-o-q drop, slightly below a preliminary estimate of -0.2 percent q-o-q. In y-o-y terms, GDP decreased 0.6 percent in the first quarter, also unchanged from a preliminary reading. That was worse than economists’ expectation for a 0.4 percent y-o-y decline, following a 0.6 percent y-o-y expansion in the fourth quarter of 2017.

  • The report from the National Bureau of Statistics of China revealed on Friday the Chinese trade surplus decreased in May. According to the report, China’s exports surged 12.6 percent y-o-y last month to $212.87 billion compared to a 12.7 percent increase in May and economists’ forecast of a 10.0 percent growth. Meanwhile, the country’s imports boosted 26.0 percent y-o-y in May to $187.95 billion after a 21.5 percent climb in the prior month, while economists had forecast an 18.7 percent surge. That marked the fastest growth in imports since January. Those trade flows produced a trade surplus of $24.92 billion in May, compared to a surplus of $28.78 billion in April and a surplus of $40.51 billion in May of 2017. Economists had expected a trade surplus of $31.90 billion in May.


III. Market Situation
Currency Market
The currency pair EUR/USD consolidated near the opening level, as investors took a breather after the recent rally in the pair, which was spurred by the weakening of the U.S. currency, and expectations that the ECB will discuss the end of the quantitative-easing (QE) program at its June meeting. Experts note that the ECB now has a huge responsibility - if the regulator does not demonstrate the expected hawkish sentiment, the euro may be under strong bearish pressure. Today, investors will focus on the dynamics of the U.S. currency, the general market sentiment toward risky assets, as well as the news from the G7 summit, which will be held in Canada on June 8-9. Resistance level - $1.1900 (psychological level). Support level - $1.1652 (low of June 5).

The currency pair GBP/USD traded in a narrow range, following sharp fluctuations in the previous session, which were sparked by rumors about the possible resignation of the UK's chief Brexit negotiator David Davis, the weakening of the U.S. currency and the statement of the Bank of England (BoE) deputy governor Dave Ramsden. Mr. Ramsden said that the recent economic data indicate that the slowdown in Britain’s economic growth in the first quarter was temporary, adding the inflation is likely to remain above the BoE’s target without an increase in rates. He also stressed that persistently above-target inflation and a sustained period of excess demand will represent a failure to meet the BoE’s remit. He acknowledged that an “ongoing tightening of monetary policy over the forecast period” will be necessary if the economy evolves as forecast. Resistance level - $1.3492 (high of May 22). Support level - $1.3295 (low of June 4).

The currency pair AUD/USD fell slightly, weighed down by the weaker-than-expected trade data from China, Australia's main trading partner. The National Bureau of Statistics of China reported the country’s trade surplus stood at $24.92 billion in May, compared to a surplus of $28.78 billion in April and a surplus of $40.51 billion in May of 2017. Economists had expected a trade surplus of $31.90 billion in May. According to the report, China’s exports surged 12.6 percent y-o-y last month to $212.87 billion compared to a 12.7 percent increase in May and economists’ forecast of a 10.0 percent growth. Meanwhile, the country’s imports boosted 26.0 percent y-o-y in May to $187.95 billion after a 21.5 percent climb in the prior month, while economists had forecast an 18.7 percent surge. That marked the fastest growth in imports since January. Resistance level - AUD0.7676 (high of June 6). Support level - AUD0.7513 (low of June 1).

The currency pair USD/JPY rose slightly at the beginning of the day, but the weak data on Japan’s GDP for the first quarter made it retreat to the session’s low. The final figures from the Cabinet Office showed the Japanese GDP contracted as initially estimated in the first quarter of 2018, as a drop in household consumption offset an advance in business spending. According to the revised data, Japan’s economy shrank 0.2 percent q-o-q in the first quarter, following a 0.1 percent q-o-q gain in the prior quarter. That marked the first contraction in Japan’s GDP since the fourth quarter of 2015. Economists had forecast a 0.1 percent q-o-q drop, slightly below a preliminary estimate of -0.2 percent q-o-q. In y-o-y terms, GDP decreased 0.6 percent in the first quarter, also unchanged from a preliminary reading. That was worse than economists’ expectation for a 0.4 percent y-o-y decline, following a 0.6 percent y-o-y expansion in the fourth quarter of 2017. Resistance level - Y110.56 (high of June 6). Support level - Y109.36 (low of June 4).

Stock Market

Index

Value

Change

S&P

2,770.37

-0.07%

Dow

25,241.41

+0.38%

NASDAQ

7,635.07

-0.70%

Nikkei

22,694.50

-0.56%

Hang Seng

30,901.38

-1.94%

Shanghai

3,067.13

-1.36%

S&P/ASX

6,045.20

-0.20%


U.S. stock indexes closed mixed on Thursday. The Nasdaq recorded the first drop in five days as the technology sector snapped its rally, while the Dow outperformed, helped by a surge in McDonald's Corp. (MCD; +4.4%) shares. Investors also remained cautious ahead of the G7 summit, set for Friday and Saturday in Canada.

Asian stock indexes closed lower on Friday, following a mixed performance on Wall Street overnight and as concerns over trade relations increased ahead of the gathering of the leaders of the Group of Seven. Weaker-than-expected economic data from China and Japan also hurt investors’ sentiment.  

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


Bond Market
Yields of US 10-year notes hold at 2.93% (+1 basis points)
Yields of German 10-year bonds hold at 0.49% (0 basis points)
Yields of UK 10-year gilts hold at 1.40% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in July settled at $65.64 (-0.47%). The crude oil prices fell moderately, due to the partial profit-taking and a slight recovery in the U.S. dollar. Investors also digested the news about delays in crude deliveries from Venezuela and awaited data on the U.S. oil rig count from Baker Hughes.

Gold traded at $1,296.10 (-0.07%). Gold prices edged down, as the U.S. currency resumed growth. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.05 percent to 93.44. Since gold prices are tied to the dollar, a stronger dollar usually makes the precious metal more expensive for holders of foreign currencies.

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


06:45

France

Industrial Production

07:15

Eurozone

ECB's Yves Mersch Speaks

12:15

Canada

Housing Starts

12:30

Canada

Capacity Utilization Rate

12:30

Canada

Unemployment rate

12:30

Canada

Employment

14:00

U.S.

Wholesale Inventories

17:00

U.S.

Baker Hughes Oil Rig Count


Market Focus

  • ECB's QE program is in line with EU law - EU court aide
  • U.S initial jobless claims lower than expected last week
  • Fed's Powell: We're 'A Long Way' From Neutral Interest Rates
  • Australian trade balance surplus rose more than expected in August
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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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