Thursday, July 18, 2019

Trade worries resurface putting equities under pressure, the Dollar retreats

Tags
  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Stocks
  • Oil

MORNING BRIEFING

Renewed trade worries and mixed earnings’ results pushed the Dollar and equities lower yesterday while investors continue to bet in favor of a July rate cut by the Fed. Treasury yields extended their decline to drop below 2.05% despite the release of the Federal Reserve’s Beige Book that indicated modest expansion across the US. The greenback’s retreat allowed the likes of the Euro and the Pound to take a breather after being under pressure earlier in the week while the Yen and the Franc advanced. Gold rallied to the upside along the rest of the safe havens but Oil saw another leg lower losing the $57 mark.

President Trump doesn’t seem happy about the lack of progress in the Sino-US trade talks despite the agreement during the G-20 meeting that saw both sides starting to negotiate a solution again. His recent remark that he could impose fresh tariffs against China “if he wants” brings trade tensions back into focus and equity traders are feeling nervous, looking to liquidate their longs. This comes at a time when the Q2 earnings releases are printing in a mixed manner and with the Fed expected to cut interest rates by only 25bps at the end of the month, the short-term bias in the stock markets is turning bearish.

This is driving Treasury yields lower again, putting the pressure on the Dollar while market participants are looking towards the safe haven instruments for protection. Both the Japanese Yen and the Swiss Franc gained over the past 24 hours and if the selling bias intensifies today we may see more gains for both currencies. Meanwhile, the European majors were able to claw back some of the ground they lost earlier in the week. However, we remain unconvinced that the Euro and the Pound will be able to hold on their gains in the near future. The broader bias remains negative and the rally yesterday may be treated as an opportunity for sellers to add to their shorts at a higher price.

Gold exploded to $1,430 yesterday when the Dollar was trending to the downside. Recent indications suggested that the yellow metal had peaked for the near term but the combination of lower Treasury yields, rising trade tensions and a decline in the stock markets sent prices higher again. The interesting question now is whether there’s more to come for Gold and we’re focused on yesterday’s peak as a break above it will drive prices towards June’s $1,435 highs.

Equities had a negative day yesterday losing around 0.5% across the globe as investors refocused on the trade tensions between the US and China. This morning, futures on both sides of the pond are pointing lower so it seems that market jitters persist and we should be in for a continuation of yesterday’s bearish price action.

MARKET EVENTS TO WATCH

  • UK Retail Sales - 12.30pm
  • US Initial Jobless Claims - 4.30pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research