FTSE -35 points at 7492 DAX -58 points at 12757 CAC -26 points at 5273 Euro Stoxx -21 points at 3565
The UK struggles with rising political uncertainties after Theresa May lost majority in June 8 snap general election. According to latest news, the PM’s office admitted that she hasn’t reach a deal to govern with a Northern Irish party last week (Bloomberg), but the Northern Irish unionists would be open to talks with May to give her support eventually (Reuters).
It looks like Theresa May is not ready to resign after her failed election gamble, yet the tensions are rising at the heart of the Conservative Party. Theresa May will face the committee of Conservative MPs today to discuss about the tragic election outcome and could well be brought to resign against her will.
According to the Telegraph, the former Chancellor Osborne said that May is a ‘dead woman walking’ and more importantly, that several MPs hinted at a leadership coup by summer time. What an uncomfortable position for the UK to start the Brexit negotiations.
Still, the GBP/USD (+0.16%) started the week better bid on rising hope that May would now see a decent opposition to her hard-Brexit plans. The pound is heading into another busy week, with the inflation (Tue), the labour market data (Wed) and the Bank of England (BoE) meeting (Thu) on its agenda. Solid inflation and earnings read could revive the BoE hawks despite the muddy political picture.
How much support the BoE could give to the UK markets depends on the macro-metrics. In fact, the inflation is a major headache for Governor Mark Carney and could restrict the extent of his monetary support throughout the challenging Brexit period. Resistance to a further GBP/USD recovery is eyed at 1.2824 (minor 23.6% retrace on March-June rise / post-election top). More offers are presumed pre-1.3000/1.3045 mid-term resistance.
In France, the freshly elected President Emmanuel Macron won 33% of support in the first round of the Parliamentary vote, which will give Macron’s on- year-old party, Republic en Marche, 440 seats out of 577 in the lower house. The second round of the election is due on Sunday. The EUR/USD kicked-off on a positive note. The 1.1300 level is still the main challenge before the Federal Reserve’s (Fed) monetary policy meeting.
The FTSE and the DAX are set for a negative open, while the selling pressure on the CAC should remain limited due to the post-election enthusiasm.
The FOMC meets on Tuesday-Wednesday and is expected to announce 25 basis points rise in Fed funds rate on Wednesday. The 25 basis points rate hike is fully priced in. Therefore, the Fed’s widely anticipated rate action may not give a further support the US dollar, as the Fed expectations shift gradually dovish beyond this week’s meeting. The question is whether the Fed would carry on with the current rate normalisation pace, or hit the brakes temporarily. The next Fed rate hike could be delayed to December and weigh on the US dollar, meanwhile further details on the Fed’s balance sheet normalisation plans could be an upside risk to the recent weakness in the US dollar.
The US 10-Year yields recovered to 2.2180%. The USD/JPY in the tight range of 110.16-110.44 in Tokyo; Nikkei (-0.58%) and Topix (-0.05%) were mixed as the producer prices remained unchanged in April, versus 0.1% month-on-month rise expected by analysts. Machine orders unexpectedly retreated by 3.1% on month to April. The Bank of Japan (BoJ) meets on Friday and is expected to maintain the status quo.
Gold retreated to $1,265 (major 38.2% retrace on May- June rise) on improved US yields. The latest sell-off could offer interesting dip buying opportunities for the USD-bears this week, with a positive target at $1,295/1,300. Breaking below $1,265 should signal a short-term bearish reversal and encourage a further slide to $1,260 (50-day moving average), 1,255 (50% retracement), $1,245 (major 61.8% retrace & 100-day moving average).
The WTI crude (+0.50%) consolidates losses as the crisis with Qatar seems to ease. Mediator Kuwait said that Qatar is ‘ready to understand’ its neighbours’ concerns and to collaborate for stability in the region. WTI crude remains in the negative trend below $46.90 (minor 23.6% retrace on May-June decline) and $47.87 (major 38.2% retrace).
Quick glance at technicals on LCG Trader:
GBP/USD intraday: caution. Short positions below 1.2780 (pivot) with targets at 1.2700 & 1.2635 in extension. Above 1.2780, upside potential to 1.2825 & 1.2880.
EUR/JPY intraday: under pressure. Short positions below 123.85 pivot) with targets at 123.30 & 122.90 in extension. Above 123.85, upside potential to 124.15 & 124.40.
Dow Jones (CME) (U7) intraday: limited upside. Long positions above 21125.00 (pivot) with targets at 21225.00 & 21260.00 in extension. Below 21125.00, downside potential to 21080.00 & 21035.00.