Here are the latest developments in global markets:
- FOREX: The US dollar index traded 0.1% higher on Thursday. Against the yen, the dollar was up nearly 0.25% as concerns of an imminent trade war subsided, diverting flows out of the Japanese currency, which is considered a safe-haven asset.
- STOCKS: US markets closed higher yesterday, managing to recoup earlier losses following comments from US National Economic Advisor Larry Kudlow that helped to calm the nerves of investors worried about a potential trade skirmish with China (see below). The Nasdaq Composite led the pack, climbing by 1.45%, while the S&P 500 and the Dow Jones gained 1.16% and 0.96% respectively. The recovery looks set to continue, as futures tracking the S&P, Dow, and Nasdaq 100 are all flashing green currently, pointing to a higher open today. The positive sentiment rolled over into Asia as well. In Japan, the Nikkei 225 surged by 1.5%, while the Topix rose 1.1%. Markets in China and Hong Kong remained closed for a public holiday. Meanwhile in Europe, futures tracking all the major benchmarks were a sea of green.
- COMMODITIES: In energy markets, oil prices are higher today, with WTI and Brent rising by 0.35% and 0.45% correspondingly. The recovery in risk appetite, combined with a surprising drawdown in the weekly EIA inventory data released yesterday, helped prices to rebound. In precious metals, gold is nearly 0.5% lower today, extending its losses from yesterday. The safe haven metal sold off amid the broader risk-on environment in markets. It’s currently trading near the $1326/ounce level and looks to be headed for a test of the March 29 lows, at $1321.
Major movers: Risk assets bounce as focus shifts to potential trade negotiations
Volatility was heightened across financial markets yesterday. Moves began after China unveiled its countermeasures to the US tariffs on technology products. The Chinese levies will target 106 US goods, among which are soybeans and aircrafts. The news triggered an immediate risk-off reaction, with US stock futures sliding alongside commodity-currencies like the aussie and the loonie, as well as the US dollar. Meanwhile, safe haven assets such as the yen and gold spiked higher.
However, the above reactions remained relatively short-lived. By the time US markets opened, sentiment started to recover, aided by some comments from the US National Economic Advisor Larry Kudlow. Asked whether the US tariffs against China may never go into effect, Kudlow replied yes, adding he expects intense negotiations. Previous market moves reversed soon thereafter, with US stocks finishing the day in the green and safe havens giving back prior gains to end the day lower.
What happens next is by far the most important chapter in the trade saga. If the two sides enter into negotiations, that would enhance the narrative that all this was only posturing ahead of tough talks, and that the situation won’t escalate further. Risk sentiment could recover, boosting stocks and commodity-currencies. Conversely, fresh countermeasures could reinforce concerns for an imminent trade war, pushing risk assets lower and safe havens higher. On balance, the scenario for negotiations appears more realistic. Neither side wants a real trade war, and by now, the US may have done enough for China to make some concessions in their trading relationship, which is probably all it wanted to achieve in the first place.
The dollar index is 0.1% higher today. Reflecting this, euro/dollar and sterling/dollar are both 0.1% lower. Note that the UK construction PMI unexpectedly fell into contractionary territory yesterday, and it will be interesting to see whether such a weakness is reflected in today’s all-important services PMI. The probability for a BoE rate hike in May still hovers around 70%.
Elsewhere, aussie/dollar and kiwi/dollar are lower by 0.3% and 0.25% respectively, giving back some of the gains they posted yesterday on the back of diminishing trade worries.
Day ahead: UK services PMI, eurozone producer prices & retail sales, and US trade data on the horizon
Thursday’s economic calendar features the services PMI print out of the UK, producer prices and retail sales out of the eurozone, as well as trade data out of the US.
At 0830 GMT, the UK’s services PMI for the month of March will be made public. The services sector dominates the UK economy, making up around 80% of GDP, and thus the reading could lead to positioning on sterling pairs, especially if it is seen as altering the odds for a rate hike by the Bank of England during its May meeting.
Earlier (0800 GMT), the eurozone will see the release of its PMI figures for the month of March for the services sector, as well as the composite measure that blends the manufacturing and services industries. However, the fact that the releases will pertain to the final prints rather than the preliminary estimates, renders considerable movements in euro pairs not that likely. Germany and France, the eurozone’s two largest economies, will also see the release of their respective services PMI numbers a little earlier (at 0755 GMT and 0750 GMT correspondingly).
Also attracting interest out of the eurozone and having the capacity to spur positioning in euro pairs are February’s producer prices and retail sales due at 0900 GMT.
The focus will next turn to North America. International trade data out of the US slated for release at 1230 GMT will be of significance, especially in light of recent developments on the trade front. In January, the US trade deficit rose to a more than nine-year high, with the Chinese-related shortfall steeply increasing. Also at 1230 GMT, initial and continued jobless claims for the week ending March 31 out of the world’s largest economy are scheduled for release, while at the same time Canadian trade data – February’s trade balance – will be made public.
Trade-related developments and their effects on currencies, but also asset classes such as equities, will yet again be on the forefront. After the Chinese retaliatory move to US tariffs, the latest “chapter” of the trade story was more calming to markets, with the US leaving the door open for negotiations with China. This move also acted as the catalyst behind the rebound in US equities on Wednesday.
Atlanta Fed President Raphael Bostic (voter) will be giving a speech at 1700 GMT, thought the topic of discussion renders any comments on monetary policy unlikely.
Technical Analysis: GBPUSD cautiously bullish in the short-term
GBPUSD has advanced in the four preceding trading days, in support of a positive short-term picture for the pair. This view is also supported by the positively aligned Tenkan- and Kijun-sen lines. The gains in previous days have not been considerable though, on balance pointing to a cautiously bullish bias.
A stronger-than-anticipated services PMI reading out of the UK could boost GBPUSD, with resistance potentially coming around the current level of the Tenkan-sen at 1.4127.
A data miss on the other hand, might exert selling pressure on the pair. Support in this case might be met around the Kijun-sen, which is currently located at 1.4005. The area around this point also includes the 50-day moving average at 1.3978 and the 1.40 handle that may hold psychological significance.
US releases due later on the day can also steer GBPUSD in either direction.