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Market panorama. 11 July 2018

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I. Market focus:

After a brief lull, the trade conflict between the U.S. and China once again escalated. The U.S. president’s administration announced a list of $200 billion worth of Chinese goods that could be subject to a new 10 percent tariffs. The Chinese side has not yet responded to this step, but there is no doubt that Beijing will adopt "mirror-like" measures in response. The aggravation of the trade war between the U.S. and China adversely affected market sentiment: the major Asian stock indexes lost more than 1 percent today, the U.S. stock-index futures were also in the red, while the yen rose sharply. The risk aversion trend is likely to prevail in the markets throughout the Wednesday session.

The focus of the market participants is also on the Bank of Canada’s (BoC) meeting, and the announcement its outcomes (14:00 GMT) and the press conference of its governor (15:15 GMT) will be the main scheduled events of the day. It is expected that the Canadian regulator will decide to raise its benchmark rate from 1.25 percent to 1.50 percent.

In addition, investors will pay attention to the comments of the heads of the ECB (07:00 GMT) and the Bank of England (BoE; 15:35 GMT), as well as the Fed’s representatives Raphael Bostic (16:30 GMT) and John Williams (20:30 GMT).

Among today's macroeconomic reports, attention should be given to the U.S. data on the producer price index (12:30 GMT) and crude oil inventories (14:30 GMT).


II. The market highlights are:

  • The Canada Mortgage And Housing Corp. (CMHC) reported on Tuesday the Canadian housing starts rose at a seasonally adjusted rate of 248,138 units in June, up from a downwardly revised 193,902 units in May (originally 195,613). That was the highest reading since November of 2017. Economists had forecast housing starts increasing by 210,000. According to the report, urban starts surged 29.9 percent m-o-m last month to 228,844, as multiple urban starts boosted by 46.4 percent m-o-m to 172,845 units, while single-detached urban starts fell by 3.5 percent, to 55,999 units. At the same time, rural starts were estimated at a seasonally adjusted annual rate of 19,294 units (+8.6 percent m-o-m).

  • Statistics Canada announced on Tuesday that the value of building permits issued by the Canadian municipalities rose 4.7 percent m-o-m in May, following a revised 4.7 percent m-o-m drop in April (originally a 4.6 percent m-o-m decline).  Economists had forecast a 1.4 percent advance in May from the previous month. According to the report, the value of residential permits climbed by 7.7 percent m-o-m on higher construction intentions for both single-family (+6.2 percent m-o-m) and multi-family (+8.8 percent m-o-m) dwellings. Meanwhile, non-residential building permits dropped by 0.7 percent m-o-m due to declines in commercial (-3.1 percent m-o-m) and institutional (-3.9 percent m-o-m) components, which were offset by a gain in industrial component (+10.6 percent m-o-m). In y-o-y terms, building permits decreased 0.4 percent in May.

  • The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Tuesday showed the U.S. job openings retreated in May from all-time high recorded in the prior month. According to the report, employers posted 6.638 million job openings in May, a drop of 202,000 (or -3.0 percent) from the April figure of 6.840 million (revised from 6.698 million in original estimate). The job openings rate was 4.3 percent in May, down from 4.4 percent in the prior month. The report showed that the number of job openings decreased for total private (-228,000) and was little changed for government. Job openings rose in federal government (+12,000) and mining and logging (+10,000) but fell in information (-60,000) and arts, entertainment, and recreation (-27,000). Meanwhile, hiring went up by 173,000 (+3.1 percent) to 5.754 million in May from 5.581 million in April. Hires for total private and for government were little changed. The hiring rate was 3.9 percent in May, up from 3.8 percent in April. The separation rate in May was at 5.468 million (+44,000 or +10.8 percent) or 3.7 percent, compared to 5.424 million or 3.7 percent in April. Within separations, the quits rate was 2.4 percent (+0.1 pp m-o-m), and the layoffs rate was 1.1 percent (-0.1 pp m-o-m).

  • The report released by the Cabinet Office on Tuesday revealed Japan's core machinery orders fell less than expected in May. According to the report, core machinery orders, an indicator of capital expenditures in the coming six to nine months, dropped 3.7 percent m-o-m in May, following an unrevised 10.1 percent m-o-m surge in April, while economists expected a 5.5 percent m-o-m decrease. According to the report, manufacturing orders rose 1.3 percent m-o-m in May, while non-manufacturing orders advanced 0.2 percent m-o-m. Government orders rose 6.1 percent m-o-m, while orders from overseas increased 1.8 percent m-o-m and orders from agencies grew 5.5 percent m-o-m. In y-o-y terms, core orders, which excludes those of ships and electricity, surged 16.5 percent in May, compared to a 9.6 percent y-o-y climb recorded in April and an 8.6 percent y-o-y gain projected by the economists.

  • The Australian Bureau of Statistics (ABS) announced on Wednesday that the Australian home loans rose 1.1 percent m-o-m in May, following an unrevised 1.4 percent m-o-m drop in April. Economists had expected a 1.9 percent m-o-m decrease. According to the report, the value of loans to owner-occupiers increased 0.7 percent m-o-m in May, while lending to investors edged down 0.1 percent m-o-m. Meanwhile, the number of both loan approvals to build new dwellings and approvals to buy established homes rose 1.2 percent m-o-m, while approvals for the purchases of new dwellings inched up 0.1 percent m-o-m.

III. Market Situation
Currency Market
The currency pair EUR/USD traded lower, due to the resumed strengthening of the U.S. currency after the Trump administration announced a list of $200 billion worth of Chinese goods that could be subject to a new 10 percent tariffs. Although China has not yet responded to this step but there is no doubt that Beijing will adopt "mirror-like" measures in response. Overall, after a brief lull, the trade conflict between the U.S. and China once again escalated, signaling other trade partners that Washington is not going to step back from the trade war. Today, investors will follow China’s response, as well as will pay attention to the release of the U.S. data on producer prices. It is expected that in June the producer price index (PPI)  rose by 0.2 percent m-o-m by 3.2 percent y-o-y. Resistance level - $1.1790 (high of July 9). Support level - $1.1630 (low of July 4).

The currency pair GBP/USD consolidated near the opening level, remaining within yesterday's trading range, due to the lack of new drivers. The pound continued to be pressured by the reports about the resignation of two top government ministers over Brexit talks - Brexit Secretary David Davis and Foreign Secretary Boris Johnson, -  as well as weak data on the UK’s industrial production for May, which overshadowed the GDP report that coincided with the forecasts. With an almost empty economic calendar in the UK ahead, traders will focus on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.3363 (high of July 9). Support level - $1.3189 (low of July 9).

The currency pair AUD/USD declined sharply, reacting to the escalation of the U.S.-China trade war after reports about the Trump administration’s plan to impose additional tariffs on $200 billion in Chinese goods. Meanwhile, some support to the pair was provided by the Australian report on home loans for May. The Australian Bureau of Statistics (ABS) announced that the Australian home loans rose 1.1 percent m-purchase-m in May, following an unrevised 1.4 percent m-o-m drop in April. Economists had expected a 1.9 percent m-o-m decrease. According to the report, the value of loans to owner-occupiers increased 0.7 percent m-o-m in May, while lending to investors edged down 0.1 percent m-o-m. Meanwhile, the number of both loan approvals to build new dwellings and approvals to buy established homes rose 1.2 percent m-o-m, while approvals for the purchases of new dwellings inched up 0.1 percent m-o-m. Resistance level - AUD0.7483 (high of July 9-10). Support level - AUD0.7361 (low of July 5).

The currency pair USD/JPY dropped sharply at the beginning of the session, but then erased all losses. The yen, which is traditionally viewed as a market safe haven, failed to benefit from the ramping up of the U.S.-China trade spat, as the U.S. dollar continued to receive broad support. The yen was somewhat influenced by the Cabinet Office’s data, which revealed that Japan's core machinery orders fell less than expected in May. According to the report, core machinery orders, an indicator of capital expenditures in the coming six to nine months, dropped 3.7 percent m-o-m in May, following an unrevised 10.1 percent m-o-m surge in April, while economists expected a 5.5 percent m-o-m decrease. In y-o-y terms, core orders, which excludes those of ships and electricity, surged 16.5 percent in May, compared to a 9.6 percent y-o-y climb recorded in April and an 8.6 percent y-o-y gain projected by the economists. Resistance level - Y111.39 (high of May 21). Support level - Y110.27 (low of July 4).

Stock Market

Index

Value

Change

S&P

2,793.84

+0.35%

Dow

24,919.66

+0.58%

NASDAQ

7,759.20

+0.04%

Nikkei

21,932.21

-1.19%

Hang Seng

28,243.15

-1.53%

Shanghai

2,777.20

-1.78%

S&P/ASX

6,215.60

-0.68%


U.S. stock indexes closed solidly higher on Tuesday, as strong quarterly results from PepsiCo (PEP; +4.8%) boosted optimism about the Q2 earnings season, while concerns over escalating trade tensions took a back seat. Investors also digested the Job Openings and Labor Turnover Survey (JOLTS), which showed the U.S. job openings retreated in May from all-time high recorded in the prior month. According to the report, employers posted 6.638 million job openings in May, a drop of 202,000 (or -3.0 percent) from the April figure of 6.840 million (revised from 6.698 million in original estimate). The job openings rate was 4.3 percent in May, down from 4.4 percent in the prior month.

Asian stock indexes closed sharply lower on Wednesday, as concerns over global trade friction reignited after the U.S. released a list of $200 billion worth of Chinese goods it might hit with tariff increases.

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


Bond Market
Yields of US 10-year notes hold at 2.84% (-2 basis points)
Yields of German 10-year bonds hold at 0.32% (0 basis points)
Yields of UK 10-year gilts hold at 1.30% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in August settled at $73.70 (-0.55%). The crude oil prices declined moderately, due to the aggravation of the U.S.-China trade conflict, as well as the broad strengthening of the U.S. dollar. Meanwhile, oil prices continued to receive some support from the latest data from the American Petroleum Institute (API), which revealed that U.S. crude supplies fell by 6.8 million barrels for the week ended July 6. At the same time, gasoline inventories decreased by 1.6 million barrels, while distillate stockpiles rose by nearly 2 million barrels. Market participants are now awaiting weekly data on U.S. crude inventories from the U.S. Energy Information Administration (EIA).

Gold traded at $1,251.60 (-0.33%). Gold prices fell moderately, as the U.S. dollar demonstrated strengthening. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.10 percent to 94.24. Since gold prices are tied to the dollar, a stronger dollar makes the precious metal more expensive for holders of foreign currencies. In addition, market participants await the U.S. report on consumer price index (CPI), set to be released tomorrow.  If the indicator is higher than expected, the dollar probably will grow further, while the gold prices will continue to show declines in the short-term perspective.

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


07:00

Eurozone

ECB President Mario Draghi Speaks

07:30

Eurozone

ECB's Peter Praet Speaks

12:00

United Kingdom

NIESR GDP Estimate

12:30

U.S.

PPI

12:30

U.S.

PPI excluding food and energy

14:00

Canada

Bank of Canada Monetary Policy Report

14:00

Canada

Bank of Canada Rate

14:00

U.S.

Wholesale Inventories

14:30

U.S.

Crude Oil Inventories

15:15

Canada

BOC Press Conference

15:30

United Kingdom

BOE Gov Mark Carney Speaks

16:30

U.S.

FOMC Member Bostic Speaks

20:30

U.S.

FOMC Member Williams Speaks

22:45

New Zealand

Food Prices Index

Market Focus

  • U.S consumer sentiment slipped in early July but remained nearly equal to the average in the prior twelve months
  • Earnings Season in U.S.: Major Reports of the Week
  • Fed's Kaplan: Could be convinced of need for fourth rate hike in 2018 depending on outlook
  • Fed: Prospective economic conditions call for further gradual removal of monpol accommodation
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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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