FTSE +20 points at 7534
DAX +58 points at 12700
CAC +29 points at 5370
Euro Stoxx +20 points at 3606
The Federal Reserve (Fed) minutes from the May 2-3 meeting revived speculations in favour of the June rate hike, as officials believed that the first quarter weakness in the economy would be temporary and it would ‘soon be appropriate’ to raise rates.
The US dollar weakened across the board, the U.S. 10-Year yields eased to 2.25%. Given that the June rate hike was broadly priced in, the US markets were rather driven by expectations that the balance sheet reduction would only be gradual. The Dow Jones (+0.36%), the S&P 500 (+0.25%) and the NASDAQ (+0.40%) extended gains in New York. Financials (+0.88%) advanced for a second day. Goldman Sachs (NYSE:GS) (+1.91%) has been the biggest gainer of the session, while JPMorgan Chase (NYSE:JPM) (-0.06%) closed slightly negative.
The US futures traded higher in Asia. The DAX and the CAC futures edged higher, hinting at a positive open in Europe.
The improved risk appetite kept most of the Asian shares in demand, yet the sentiment remained under the shadow of Moody’s rating cuts on Chinese and Hong Kong debt in the morning, yet improved significantly into the afternoon session.
Shanghai's Composite swung between gains and losses as investors seemed undecided on China’s mainland stocks after Moody’s cut the Chinese debt rating to A1 from Aa3. Shanghai stocks started the day downbeat, then rallied up to 1.39%.
Hang Seng (+0.97%) move higher, although Moody’s downgraded Hong Kong’s local and foreign currency rating by a notch to Aa2 from Aa1 as well. The downgrade was justified by Hong Kong’s rising debt, slow economic reforms and high Chinese exposure.
Nikkei (+0.38%) and Topix (+0.27%) traded in the positive territory, as the USD/JPY traded above the 200-day moving average (111.32) in Tokyo. Softer US yields could encourage minor selling pressures in the USD/JPY. Light option barriers are eyed at 112.00 at today’s expiry. Dip-buyers are expected to deliver support pre-111.15/111.00 (50-day moving average / optionality) and 110.52/110.23 (major 61.8% retrace on April-May rise / May 17 dip).
Australia’s ASX advanced 0.36% on the back of gains in energy and mining stocks. The AUD/USD cleared the 0.75 resistance. Softer US yields could pave the way to 0.7522/0.7540 (200-day moving average / 50% retracement on March-April decline).
FTSE futures (+18.5 points) extended strength on firmer oil, softer pound story.
Cable remains offered below the 1.30 level. The second GDP estimate will reveal which components helped or squeezed the UK’s economy in the first quarter. Slower private consumption growth, softer exports and a possible contraction in fixed capital formation may have weighed on the UK’s economy in the first quarter. In compensation, larger government spending and improved business investment may have kept the quarter’s growth estimate unchanged at 0.3%. A soft GDP read should keep the pound offered below the $1.30, while a disappointment may not gather enough momentum to fight back the solid resistance at 1.3044 (major 38.2% retracement on post-Brexit sell-off).
A group of twenty-four OPEC and non-OPEC nations meet in Vienna today and are expected to prolong their production cuts by nine more months to sustain the oil prices. According to the weekly EIA data, the US crude oil inventories fell by 4.43 million barrels last week, versus -2.4 million expected and -1.8 million a week earlier. The seventh straight week of decline in US oil inventories, combined to the OPEC expectations sent the WTI crude to a one-month high.
The barrel is trading just shy of $52 before the OPEC announcement. Offers are touted at $53/55. Provided that the prices already include nine-month extension and perhaps the possibility of a positive surprise, a nine-month extension per se could not be sufficient to push the prices higher, in which case, we could see a downside correction toward the $50.01 (minor 23.6% retracement on May rise triggered by OPEC speculations), $49.85 (200-day moving average) and $48.85 (major 38.2% retrace, which should distinguish between the continuation of the OPEC-based positive trend and a short-term bearish reversal due to an eventual disappointment).
The loonie could be an interesting proxy for OPEC trades. The USD/CAD recently broke the critical 1.3477-support (major 38.2% retrace on Jan-May rise) as the Bank of Canada (BoC) maintained the status quo. A potential decline in oil prices could generate interesting dip buying opportunities into the 1.3380 (50% retrace) and 1.3283 (major 61.8% retrace).
EUR/USD is back above 1.12 level. The daily MACD (Moving Average Convergence Divergence) is positive and the relative strength index is just below the overbought area. Positive trend and momentum indicators suggest that the EUR/USD could make another attempt to the 1.1300, the Trump Election Day high. Top sellers could step in by 1.1300, as the European Central Bank (ECB) maintains its supportive tone unchanged, versus the Fed, preparing to raise rates in June for the third time since the Trump election.
Quick glance at technicals on LCG Trader:
GBP/USD intraday: Long positions above 1.2930 (pivot) with targets at 1.3005 & 1.3020 in extension. Below 1.2930, downside potential to 1.2900 & 1.2875.
EUR/AUD intraday: under pressure. Short positions below 1.5010 (pivot) with targets at 1.4920 & 1.4875 in extension. Above 1.5010, upside potential to 1.5050 & 1.5070.
Dow Jones intraday: upside prevails. Long positions above 20950.00 (pivot) with targets at 21100.00 & 21200.00 in extension. Below 20950.00, downside potential to 20890.00 & 20840.00.