FTSE -22 points at 7450 DAX -41 points at 12773 CAC -27 points at 5266 Euro Stoxx -15 points at 3545
China’s 222 A-shares are approved to join the MSCI global indices, which opened a big window of opportunities for the Chinese stocks. The outcome was greater than the 169 stocks in analysts’ focus prior to the announcement. The selection of A-shares currently stands for 0.7% of the MSCI EM, yet the weighting is due to increase gradually over time.
The internalisation of the Chinese stock markets is a significant milestone for the world’s biggest emerging market and will certainly impact the investor sentiment positively. Moreover, the inclusion of 222 onshore stocks will serve to balance the Chinese benchmark, which was overweight in Hong Kong’s financial stocks previously.
The yuan traded near its 100-day moving average (6.8401) against the US dollar. Shanghai and Shenzhen stocks edged higher with the prospects of increased capital inflows to the Chinese stocks in months and years to come.
Hong Kong stocks (-0.50%) remained on the back foot.
Elsewhere, the sell-off in oil dampened the mood. The WTI crude traded at $42.75 on Tuesday, its lowest level since November, and recovered past $43.00 after the API report showed 2.72 million barrel contraction in the US crude inventories last week. The EIA weekly data is due today. Analysts expect 1.2 million barrel contraction in the US crude inventories over the last week, compared to 1.7 million fall a week earlier. Lower contraction or higher inventories could further weigh on the oil prices. The key support stands at $42.75 (November low) before $40.00/39.55 (August 1st support).
The FTSE 100 closed Tuesday’s session 0.68% lower as the slide in energy (-2.25%) and mining stocks (-2.21%) outweighed gains accumulated on the back of a softer pound. FTSE stocks are seen at least 20 points softer at the Wednesday open.
As anticipated, the DAX and the Dow Jones hit record high levels (€12,952.54 and $21,535 respectively) on Wednesday, yet failed to hold on to their gains and gradually declined to the negative territories into the close. The S&P500 energy stocks erased 1.25%.
The ASX 200 (-1.53%) joined the sell-off, as Australian energy producers and miners wrote off 2.32% and 2.35% in Sydney.
Nikkei (-0.46%) and Topix (-0.33%) traded in the red, as the USD/JPY declined to consolidate gains above the 100-day moving average (111.55). From a technical point of view, the daily MACD (Moving Average Convergence Divergence) will likely step into the positive zone and the bullish reversal could encourage a further rise to 112.13/112.15 (38.2% retracement on January-April decline and 200-day moving average)
The US dollar is better bid against the G10 majors, except the yen. Though the direction is unclear as the US yield curve flattens; the US 2-Year yields improve, as the 10-Year yields stagnate at the lowest levels since November.
Gold extended losses to $1’241, yet flattening US yields could limit the downside appetite in the yellow metal. Buyers are touted pre-200-day moving average ($1’237).
The EUR/USD tests 1.1117 (minor 23.6% retrace on April – June rise) for a further slide to 1.1100 (50-day moving average) and 1.1013 (major 38.2% retrace). Option barriers stand at 1.1155, 1.1180 and 1.1205 at today’s expiry and will likely cap the upside potential.
The GBP/USD hit a fresh post-election low yesterday, as the Bank of England (BoE) Governor Mark Carney said that the bank is not ready to increase the interest rates anytime soon. Weak wages growth and the Brexit uncertainties require a loose monetary policy according to Carney, as he is willing to see the reaction of the economy to the 'Brexit reality’. However, the UK's rising inflationary pressures revived the hawks at the heart of the MPC at the June meeting. Three members voted in favour of a rate hike versus five in favour of the status quo. The consolidation of the hawkish view should keep the BoE-hawks alert for dip-buying opportunities approaching 1.2577 (50% retrace on March-May rise) and 1.2540 (200-day moving average).
On the political front, there are different opinions on whether PM Theresa May’s Conservatives could conclude a deal with the Northern Ireland DUP. Queen Elisabeth II will reveal the government’s legislative program at 11:30am in London. The focus of the speech will be the Brexit.
Finally, the Reserve Bank of New Zealand (RBNZ) is expected to maintain its cash rate unchanged at 1.75%. The NZD/USD trades in a positive trend; support is seen at 0.7200 (minor 23.6% retracement on May-June rise) and 0.7127 (major 38.2% retrace). Soft US yields could attract the carry traders for the continuation of the bullish development toward the 0.7375 (February high), 0.7402 (November 2016 high) and 0.7485 (June 2016 high).
Quick glance at technicals on LCG Trader:
GBP/USD intraday: downside prevails. Short positions below 1.2675 (pivot) with targets at 1.2600 & 1.2550 in extension. Above 1.2675, upside potential to 1.2725 & 0.2760.
EUR/USD intraday: under pressure. Short positions below 1.1165 (pivot) with targets at 1.1115 & 1.1180 in extension. Above 1.1165, upside potential to 1.1185 & 1.1210.
AUD/USD intraday: downside prevails. Short positions below 0.7600 (pivot) with targets at 0.7550 & 0.7530 in extension. Above 0.7600, upside potential to 0.7630 & 0.7655.