Prepared by Jeff Halley, Senior Market Analyst
Holidays subdue volatility
With both the US and the UK closed for holidays overnight, financial markets enjoyed a quiet start to the week. European shares rose modestly following the European Union elections, which drew a collective sigh of relief from Brussels as voters shifted parties in a larger-than-average turnout, but stayed within the Liberal/Centrist comfort zone.
President Donald Trump said from Japan that the US wasn’t ready to make a trade deal with China yet but that things were progressing nicely with Japan. Canada also made initial steps to ratify the NAFTA mark two agreement, meaning, the US appears content to let China simmer while tidying up various other trade blocs for now.
Asian markets may enjoy a boost today as Bloomberg reports that Alibaba may be about to launch a USD20 billion share offering on the Hong Kong Stock Exchange. Exciting news for Hong Kong and perhaps a sign of things to come as Chinese companies look locally to raise funds instead of an unwelcoming and suspicious US. Cause and effect – two can play the trade war game.
On the data front, South Korean consumer confidence fell more sharply than expected today ahead of Taiwanese consumer confidence and Thailand’s industrial production later this morning. Markets will monitor this data closely for signs that the US-China trade friction is spilling over regionally.
The dollar is modestly stronger today following a muted session overnight with both New York and London closed. Notably, the British pound (GBP) gave up the 1.2700 level and fell to 1.2680 as the rally following Prime Minster May’s resignation runs out of steam.
Regional currencies will probably be mostly unchanged following the overnight sessions, boosted by potential IPOs in Hong Kong on the one hand, but tempered by potentially weak local data and President Trump’s social media account on the other.
Equities are set for a boost this morning following a calm but positive session for stocks in Europe and the potential Alibaba offering on the Hong Kong exchange as reported by Bloomberg. Sentiment will remain fragile though with the US President still in Japan as trade talks continue there.
With WTI closed, Brent Crude rose 1% to USD70.00 a barrel overnight as a quiet news front allowed it to claw back last week’s losses slowly. However, Brent faces serious technical resistance in this area, being the break-out level from last week, and the rally still appears corrective in nature.
With ample inventories in the US and trade frictions still at the fore – albeit quiet for the moment – oil’s recovery is fragile, and traders should exercise caution at these levels.
Gold remained almost unchanged at USD1,285.00 an ounce, which is hardly a surprise with both New York and London closed. Bitcoin continues to steal gold’s safe-haven thunder leaving the precious metal marooned in a USD1,270.00 to USD1,290.00 an ounce range.
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