The European stock market (Stoxx-600) closed around 380.33 Thursday, edged up +0.15% as Trump blinks on China tariffs and as oil jumped on suspected terror attacks by Iran in the Gulf of Oman. As a reminder, on late Wednesday, Dow recovered from the session low after Trump said he had no deadline for implementing further tariffs on Chinese goods.
As a part of his daily ritual, on late Wednesday Trump said: “I have a feeling that we’re going to make a deal with China. But if the U.S. cannot make a deal with China, the U.S. will put tariffs on $325B of Chinese goods. But I think that we’ll end up making a deal with China. Our relationship with China a little testy right now over tariffs, but I have no deadline for implementing further tariffs on Chinese products”.
Trump said, pointing to his head: “My deadline is what’s up here—but any deal with China can't be less than we already had”. As for the trade war with China, Trump literally said he has no deadline for it to return to trade talks, other than the one in his head.
There was also a report early Thursday that China’s President Xi will likely meet Trump at the G20 summit and before that Xi will also meet Japan’s PM Abe on 27th June. Meanwhile, in another sign of “united front” against “Trump trade war and sanction aggression”, China, Russia and India will meet in the sideline of SCO, currently going on in Kazakhstan.
On Thursday, China said it will 'fight to the end' if the U.S. insists to escalate trade tensions. The Chinese MOFCOM said: “There is no new information on US-China trade talks, but China firmly opposes US unilateralism and won't back down on principle issues in trade talks. China has not taken any new measures on rare earth exports and the fluctuations in rare earth exports are due to changes in market conditions”.
Further on Trump-Xi meeting suspense, a White House spokesperson when asked Thursday, if Trump would meet Xi at G20, said it "looks like we are moving in that direction".
The market was also helped by energies as oil soared on reports two oil tankers (Japanese/ Norwegian) were attacked and caught fire in the Gulf of Oman, near the Straits of Hormuz, allegedly by Iranian torpedo attack.
On Thursday, the European market (Stoxx-600) opened in the red tracking subdued Asian cues, but it soon recovered on hopes and hypes of U.S.-China trade truce as Trump blinks and as oil jumped, helping propel energy stocks on both sides of the Atlantic. Europe’s oil producers moved higher in the region’s stock markets.
The European market was also boosted by telecoms as Germany dished out licenses for its new 5G mobile network to some new entrants. Germany’s 5G auction ended in which raised EUR 6.55B, above estimates of EUR 3-5B. Four companies won bids: Deutsche Telekom (DE:DTEGn), won 130MHz, Vodafone (LON:VOD), won 130MHz, Telefonica (MC:TEF) Deutschland, won 90MHz and Drillisch, won 70MHz.
Additionally, the European market was helped by basic resources, metals/miners (hopes of China trade deal as Trump blinks), while banks & financials dragged on lower Bund yields and defensives such as utilities and consumer staples were under stress.
In terms of individual movers, Aurubis plunged on guidance warning as Europe's largest copper producer warned on profits and said its CEO would leave the company immediately. Britain’s Ferguson jumped after Activist fund Trian Fund Management said it had built up a 6% stake in the British plumbing products company, days after it reported subdued numbers. Thales surged on upbeat guidance as it raised its EBIT forecast, while Wirecard soared on analysts’ rating upgrade.
Technical View (DAX-30, CAC-40, MIB-40, and FTSE-100):
Technically whatever may be the narrative, DAX-30 has to sustain over 11950 for a rally to 12100/12160*-12265/22330 and further 12465/12600*-12650/12725 in the near term (under bullish case scenario).
On the flip side, sustaining below 11925, DAX-30 may further fall to 11840/11760*-11630/11590 and 11450*/11390-11340/11270 in the near term (under bear case scenario).
Technically whatever may be the narrative, CAC-40 has to sustain over 5355 for a further rally 5385/5405*-5475/5560* and 5605*/5675-5715/5855 in the near term (under bullish case scenario).
On the flip side, sustaining below 5335, CAC-40 may further fall to 5305/5270*-5240/5210* and 5170*/5125-4980/4950 in the near term (under bear case scenario).
Technically whatever may be the narrative, MIB-40 has to sustain over 20065 for a rebound to 20150/20200*-20375/20475* and further rally to 20550/20690-20895/20975 in the near term (under bullish case scenario).
On the flip side, sustaining below 20035, MIB-40 may further fall to 19880*/19800-19700/19550 and 19450/19325-19150/18900 in the near term (under bear case scenario).
Technically whatever may be the narrative, FTSE-100 has to sustain over 7315 for a rebound to 7360*/7415-7480*/7525 and further rally to 7600/7715-7775/7890 in the near term (under bullish case scenario).
On the flip side, sustaining below 7295, FTSE-100 may further fall to 7215*/7185-7130*/7095 and 7045/7000-6940/6900 in the near term (under bear case scenario).
Germany 30
On Thursday, Germany’s Dax-30 jumped +0.44% to close around 12169.05, near the mid-levels of session low-high of 12079.60-12201.78 in a day of moderate volatility. Germany was supported by techs, telecoms, healthcare, and construction.
France’s CAC-40 ticked up +0.01% to close around 5375.63, almost at the mid-point of session low-high of 5392.51-5353.11n in a day of moderate volatility. France was helped by metals (Arcelor Mittal), healthcare, while dragged by banks & financials (Societe Generale (PA:SOGN)).
On Thursday, Britain’s FTSE-100 ticked up +0.01% to close around 7368.57, near the mid-levels of session low-high of 7350.98-7398.61 in a day of rangebound trade. Britain was helped by energies (higher oil).
Italy 40
On Thursday, Italy’s MIB-40 jumped +0.82% to close around 20630.75, near the session high of 20658.92; earlier it made a low of 20391.20 in a day of moderate volatility. Italy was boosted by the growing sign of budget truce with the EU despite intensifying “war of words” between the two sides”.
Ahead of a meeting of Eurozone finance ministers Italian Economy Minister Tria insisted that no additional measures are needed over its budget. But Italy can still seek a deal with the EU to avoid excessive deficit procedures (EDP).
Tria said: “We will explain we will reach our targets over deficit… we don’t need additional measures, (but if needed) we will adopt them---what will happen at the Eurozone finance minister meeting by July 9 is that we will seek a deal. We will explain to Eurozone ministers Italy will respect fiscal targets”.
Meanwhile, Eurogroup President Centeno warned that “reducing Italy’s debt is of utmost importance for growth, for the stability of the Eurozone”. And, what he expected to hear from Tria was “that the targets that were committed by the Italian government at the end of last year are achieved”. European Commission Vice President Dombrovskis reiterated that “substantial corrections” is needed in Italy’s budget to meet fiscal targets for 2019 agreed with the European Commission last December.
On Thursday, EU Moscovici also wants a credible path from Italy. The European Commissioner for Economic and Financial Affairs Moscovici said “the ball is in Italy’s court” regarding the country’s excessive budget that could lead to the disciplinary proceedings.
Moscovici clarified: “We need to see a credible path for 2019 as well as 2020. We stand ready to take into account any new elements that Italy may put forward, but let’s not waste time. Italy’s high debt is a major vulnerability for its economy and we expect Eurozone finance ministers to take stock of Italy tomorrow. No one should be in doubt that we will apply EU rules to Italy and now the ball is in Italy’s court. We need new data, a clear path that shows Italy complies with fiscal rules in 2019-20 to avert disciplinary procedure”.
On the other hand, Italian Deputy PM Salvini said: “We’re not asking Europe for money … what we ask for is to be able to cut taxes for Italians… We definitely won’t introduce new taxes, we won’t increase the value-added tax (VAT), we won’t introduce a wealth tax, and we won’t touch Italians’ bank savings… We want to free up resources”.
As per reports, Italy aims to convince the EU to delay the decision of EDP until after summer as Italy’s coalition government believes its public finances will look brighter after tax revenue data in July. Italy’s PM Conte said: “Italy wants to respect the EU stability pact, but should also be allowed to criticize rules. We will fully meet 2019 public finance goals and maybe improve on them.
Italy’s deputy PM Di Maio said: “Italy wants budget or competition commissioner in newly elected European Commission. I do not see any government reshuffle on the horizon and Italy will behave responsibly in Europe but must be respected. Italy will finance planned tax cuts through deficit and will do what Italians need. Italy is seeking dialogue with the EU as EU’s austerity policies have been wrong. The 2020 budget will be realistic and the government does not want to create tensions with the EU. But there will be no budget correction (for 2019) and the Italian government is committed to cutting taxes. Italy’s government will decide how to finance tax cuts as part of discussions on 2020 budget law later this year”.
On Friday, Centeno said: “Eurozone ministers have asked Italy to take steps to be in line with EU fiscal rules”. Moscovici warned: “We will continue with preparations for disciplinary steps against Italy over debt”.
Overall, it now seems that Italy has to budge to the EU pressure to keep its fiscal deficit target already agreed despite their domestic political compulsions.
WTI Oil
On Thursday, oil (WTI/Jul-19) closed around 52.28, jumped almost +2.23% on suspected oil tanker attack by Iran, but slips from the session high of 53.45 on the credibility of finger pointing to Iran. In brief, despite widespread suspicion, Iran has no advantage/leverage to attack two Japanese oil tankers at a time, when Japan is trying to mediate between Iran and the U.S. Japan is also a good ally and oil customer of Iran. Thus the overall rally of oil is quite limited despite the U.S. allegation that the oil tanker attack was done by “State actors”.
Oil soared on reports two oil tankers (Japanese/ Norwegian) were attacked and caught fire in the Gulf of Oman, near the Straits of Hormuz, allegedly by Iranian torpedo attack. The latest incident comes after the U.S. alleged that Iran used mines to attack four oil tankers off the nearby Emirati port of Fujairah in May. The area is near the Strait of Hormuz through which a fifth of global oil consumption passes from Middle East producers.
The oil tanker attack/fire incident happened at a time when Japan’s Abe and Iran’s Khamenei were in a meeting and Abe was trying to persuade the Iranian leader to “negotiate” with Trump though him. Actually, Trump is now trying to negotiate with Iran through Abe, which Iran trashed right away.
Soon after the report of oil tanker attack and finger pointing to Iran, its foreign minister Zarif tweeted: “Reported attacks on Japan-related tankers occurred while PM @AbeShinzo was meeting with Ayatollah @khamenei_ir for extensive and friendly talks. Suspicious doesn't begin to describe what likely transpired this morning. Iran's proposed Regional Dialogue Forum is imperative”.
Despite widespread suspicion, Iran has no advantage/leverage to attack two Japanese oil tankers at a time, when Japan is trying to mediate between Iran and the U.S. Japan is also a good ally and oil customer of Iran. Thus the overall rally of oil is quite limited despite the U.S. allegation that the oil tanker attack was done by “State actors”. Saudi Arabia also suggested that Iran-backed Houthi rebels were responsible for the tanker attack. And Saudi Arabia will gain from oil price jump and the U.S. could also keep Iran under pressure, or even launch a real/proxy war for the regime change (two birds with one stone strategy).
Meanwhile, Trump appreciates a visit by Abe to Iran and his effort of diplomacy but said “too soon to even think about” the U.S. making a deal with Iran. Trump tweeted Thursday: “While I very much appreciate P.M. Abe going to Iran to meet with Ayatollah Ali Khamenei, I personally feel that it is too soon to even think about making a deal. They are not ready, and neither are we!”
The U.S. Secretary of State Pompeo tweeted: “It is the assessment of the U.S. government that Iran is responsible for today's attacks in the Gulf of Oman. These attacks are a threat to international peace and security, a blatant assault on the freedom of navigation, and an unacceptable escalation of tension by Iran”.
Pompeo added: “Iran is working to disrupt the flow of oil through Strait of Hormuz. Iran is lashing out because the regime wants our successful maximum pressure campaign lifted. No economic sanctions entitle the Islamic Republic to attack innocent civilians, disrupt global oil markets and engage in nuclear blackmail---the U.S. ambassador to the United Nations will raise the issue in the Security Council. The international community condemns Iran’s assault on the freedom of navigation and the targeting of innocent civilians”.
Although, a real war between the U.S./Saudi coalition and Iran may be premature at this stage, the underlying “war of words”, middle east geopolitical jitters and the U.S. aggression of selling its military arms to Saudi Arabia and other allies in the region to “defend” any Iran “adventure” is keeping oil elevated. But lack of any “major action” on Iran by Trump because of the higher oil price factor could be also negative for oil coupled with a probable trade truce with China.
Oil prices were lower Friday after the IEA reduced its forecast for global oil demand for the second consecutive month, to 1.2 mbpd this year from 1.3 mbpd prior.
Technical View: Crude Oil/WTI (July-19) - currently have vital support at 51.25/50.25 and resistance at 52.50/53.80
Technically, whatever may be the narrative, time and price action suggests oil now has to sustain above 50.50 for a rebound to 51.25*/52.50-53.80*/54.70 and 55.95/57.35*-57.90/58.30 and 59.70/60.70-61.45/61.95 in the near term (under bullish case scenario).
On the flip side, sustaining below 50.25, the oil may further fall to 49.45/47.50-46.30/44.25 and 43.50/42.35*-42.00/41.00 and 39.00-35.00 50 in the near term (under bear case scenario).
On Thursday, EURUSD closed around 1.1279, edged down almost -0.08% on Trump’s sanction tantrum as he threatened to impose sanctions on Germany (?) to stop construction of the Nord Stream 2 gas pipeline between Russia and Germany, sending the euro lower, helping European stocks to some extent.
The “sanction and tariff king” Trump said: “We're protecting Germany from Russia, and Russia is getting billions and billions of dollars in money from Germany”. In a further sign of deterioration in U.S.-Germany relations, Trump upped his criticism of Berlin’s support for a new NG pipeline into Europe from Russia, saying he’s looking at sanctions to block the Nord Stream 2 project that would leave Germany “captive” to Moscow.
As a pointer, the U.S. also wants to sell NG to Germany. Trump has also repeatedly rebuked Merkel’s government over other policies, like trade and defense, while Germany has criticized Trump’s moves to abandon agreements on climate change and Iran. Russia denounced Trump’s comments as pure “blackmail”.
It seems that Trump is rejuvenated from his Mexican tariff victory and upped his ante on not only China but also his close NATO ally Germany as-well-as France. Trump threatened sanctions over Angela Merkel’s continued support for a gas pipeline from Russia and warned that he could shift troops away from America’s NATO ally over its defense spending.
On Thursday, EURUSD made a session high of 1.1304 on growing optimism about EUR as a global reserve currency as the ECB said in a report that Euro’s international role strengthened in 2018 and early 2019 reversing a declining trend in recent years. Share of Euro as global reserve currency rose 1.2% in 2018, up from 19.5% to 20.8%. The euro’s share in international debt issuance and international deposits also increased, together with its share in the value of outstanding international loans.
The ECB President Draghi said: “The period was characterized by growing concerns about the impact of international trade tensions, a protracted slowdown in global growth, reversals in cross-border capital flows and challenges to multilateralism, including the imposition of unilateral sanctions. On balance, these developments, together with progress towards deepening Economic and Monetary Union (EMU), seem to have had a positive effect on the international use of the euro, which showed tentative signs of recovering from historic lows”.
But overall, EURUSD was also undercut by dovish jawboning by ECB after 2% rally soon after the last monetary policy meeting. ECB may ease/cut if European slowdown intensified amid Trump trade war agenda.
On Wednesday, ECB’s GC member Villeroy said: “ECB can do more if slowdown becomes a real slamming of the brakes. As inflation falls short of the central bank’s target, monetary policy must be kept active and accommodative. Also, if the current slowdown becomes a real slamming of the brakes, we can do more than we are doing currently. However, they can temporarily attenuate the consequences of a weaker global economy, but they cannot take care of the cause”.
Technical View: EURUSD
Technically, whatever may be the narrative, EURUSD has to sustain above 1.13100 for a further rally to 1.13250*/1.13450-1.14200/1.14500* and 1.14900/1.15200-1.15700* in the near term (under bullish case scenario).
On the flip side, sustaining below 1.13000, EURUSD may again fall to 1.12400*/1.12000-1.11600/1.11000* and 1.10600/1.10100-1.09800/1.09300 and further plunge to 1.08900/1.08300*-1.08000/1.07500 in the near term (under bear case scenario).
WTI Oil
