Here are the latest developments in global markets:
- FOREX: The dollar index was gaining ground, while the euro was on the defensive following a cloud of uncertainty after Sunday’s elections in Italy. The aussie and the kiwi were also recording notable losses versus the greenback on the back of rising trade tensions.
- STOCKS: US markets closed mostly higher on Friday, even despite the rising probability of a tit-for-tat trade war between the US and its major partners. The Nasdaq Composite surged 1.1%, while the S&P 500 rose 0.5%. The Dow Jones, on the other hand, declined 0.3%. The turbulence in equity markets seems to be far from over, as futures tracking the Dow, S&P and Nasdaq 100 are all currently well into negative territory, signaling a negative open today. Asian markets continued to underperform amid heightened trade concerns. In Japan, the Nikkei 225 and the Topix pulled back by 0.7% and 0.8% respectively, while in Hong Kong, the Hang Seng plunged 2.2%. In Europe, futures tracking most of the major benchmarks were flashing red today, indicating that these indices may extend the losses they posted on Friday.
- COMMODITIES: In energy markets, oil prices were trading a little higher on Monday, with WTI and Brent crude both rising a little more than 0.1%. The gains are being attributed to supply disruptions in Libya, as well as optimism that a meeting between OPEC ministers and US shale firms later today will help to address oversupply concerns. In precious metals, gold was 0.3% higher on Monday, last seen near the $1326/ounce mark. The precious metal has managed to regain some ground lately as investors focused on the prospect of a retaliatory trade war hurting the global economy, and could well extend its gains if such worries intensify further.
Major movers: Euro declines on Italian political uncertainty; yen continues to gain; antipodeans retreat, hurt by trade concerns
The eurozone’s common currency was losing ground after initial results from Sunday’s Italian elections showed no clear winner, pointing to a hung parliament. Populist-perceived parties did have a strong showing though, and this is perhaps another reason – besides the uncertainty – for the euro’s decline.
The German Social Democratic Party’s (SPD) decision to support a “grand coalition” with Chancellor Merkel’s conservative bloc is seen as euro-supportive, but still it wasn’t enough to prevent the currency from recording losses.
Euro/dollar was 0.3% down at 1.2282, while the single currency extended its losses versus the yen following considerable declines during the week that preceded. Euro/yen was 0.6% down, trading not far above a fresh six-month low of 129.33.
Meanwhile, American tariffs continue to weigh on sentiment and this is particularly evident in equity markets. On this front, it is interesting that China said it will host US officials for a new round of talks on trade issues.
Turning to the greenback, the dollar index was 0.25% higher at 90.14, gaining mostly on the back of a weaker euro as the US currency kept retreating versus the yen. Dollar/yen was 0.35% down at 105.36, close to the near 16-month low of 105.23 hit on Friday. The Japanese currency benefitted last week as BoJ Governor Haruhiko Kuroda made talk of an exit from ultra-easy monetary policies. Despite that being dependent on the Japanese central bank meeting its inflation target, still markets interpreted it as paving the way for policy normalization.
Pound/dollar was 0.1% down with Brexit developments remaining in focus following last week’s speech by UK PM Theresa May on the future relationship between the Britain and the EU.
The antipodeans were recording losses versus the US dollar, with aussie/dollar and kiwi/dollar trading lower by 0.3% and 0.4% respectively. Both Australia and New Zealand rely on commodity exports and it is thus natural for rising trade tensions to act as a drag on their currencies. Australia saw the release of some strong numbers, including on building approvals, earlier on Monday, but still they weren’t enough to halt the currency’s decline.
Day ahead: Italian election results awaited; UK and US PMIs in focus ahead of a busy week
The euro was trading on a softer tone on Monday, as the positive coalition outcome in Germany was not enough to offset the political concerns emanating from Italy. The results of the Italian election are still not official yet, though exit polls and projections point to a hung parliament, i.e. no single party or coalition having gained enough votes to establish a majority. While this should come as little surprise considering that opinion polls suggested as much, what probably caught the market off-guard is the surge in popularity for Eurosceptic parties like the Five Star Movement (M5S) and the Northern League.
Once the results are finalized, attention will shift to the coalition-making process, which promises to be a lengthy one considering that the M5S (that is now the largest single party) previously said it wouldn’t participate in any coalition. Although the euro could remain under some pressure as markets digest the commotion in Italy, the currency’s short-term bias may be decided primarily on Thursday, when the European Central Bank (ECB) meets.
Turning to economic data, in the UK, traders will turn their sights to the release of the services PMI for February, at 0930 GMT. The index is expected to have risen to 53.3 from 53.0 previously, which would signal that the UK’s largest sector gained some momentum during the month. At the time of writing, markets have priced in a 70% probability for the Bank of England to hike rates in May, and a strong services PMI today could push that number higher, potentially helping sterling to recover some of its latest Brexit-related losses.
In the eurozone, retail sales (1000 GMT) for January are anticipated to have rebounded in monthly terms, and to have accelerated somewhat on a yearly basis.
Out of the US, the ISM non-manufacturing PMI for February is due out at 1500 GMT. The index is projected to decline to 59.0, from 59.9 in the previous month. Interestingly enough, the manufacturing print for the month beat a similar forecast for a decline and instead surged to reach a high last seen in 2004. Thus, investors may look to the non-manufacturing print in order to gauge whether that was an isolated phenomenon, or whether the broader economy indeed picked up some speed in February.
As for the speakers, Fed Board member Randal Quarles (voter) is due to deliver remarks at 1815 GMT. In the UK, Finance Minister Philip Hammond will appear before Parliament to discuss the government’s plans for leaving the EU.
In energy markets, a meeting between major US shale firms and OPEC oil ministers will be closely eyed, amid expectations that the two sides could coordinate in order to prevent another oversupply crisis.
Elsewhere, this will be a particularly calendar-heavy week, packed with central bank meetings. The week begins with a Reserve Bank of Australia gathering on Tuesday, following by a Bank of Canada decision on Wednesday. On Thursday, the ECB gathering will be in the spotlight, while on Friday, the Bank of Japan will announce its own decision a few hours before the US releases its all-important nonfarm payrolls report for February. In China, the annual National People’s Congress kicked off today, with Premier Li Keqiang announcing that the nation’s growth target for 2018 will be 6.5%.
Technical Analysis: Gold looking bullish in short-term as it records 6-day high
Gold has advanced considerably after hitting a two-month low of 1,302.70 on March 1. Earlier on Monday it rose to 1,327.66, this being a 6-day high, while it is currently trading not far below this level.
Technical indicators are pointing to a bullish picture in the short-term: the Tenkan-sen line has crossed above the Kijun-sen, while the RSI indicator is heading higher, having crossed above the 50 neutral-perceived level.
More uncertainty, either on the political front or on trade, is likely to boost the safe-haven perceived asset. In this case, resistance might occur around the current level of the 100-period moving average at 1,330.17.
On the other hand, should political and trade considerations ease, the precious metal could lose part of its allure and record losses. In this case, support could come around the 50-period moving average at 1,324.46. Price action is taking place close to this level with further declines shifting the focus to the Tenkan-sen at 1,321.41.