Despite an early burst higher for the Dow following Trump’s turnaround on Chinese restrictions, the index surrendered its biggest daily gain in 4 months to close 165 points in the red. A selloff in tech stocks & financials overshadowing a rally in the energy sector.
Asian markets took their cues from the US, heading southwards overnight. China, which technically entered bear market territory in the previous session after dropping 20% from its January peak, continued to grind lower, as trade war concerns and a slowing of momentum in the economy have sent investors running.
Tracing losses in the US & Asia, Europe is on track for a negative start. Despite Trump’s turnaround on Chinese restrictions, and oil attempting to hold its gains, the global trade outlook still remains extremely murky. The lack of certainty over what could happen next is weighing on sentiment, even in the absence of fresh headlines. This drags on risk appetite pulling the equity indices lower whilst boosting traditional safe havens such as the yen. USD/JPY trade 0.2% higher overnight.
As trade war headline fatigue sets in, partially caused by the recent lull in the economic calendar, traders will be pleased to wake up to a slightly fuller economic diary, with German inflation figures and the final revision of US GDP data due for release, in addition to the EU Summit to capture the markets’ attention.
No Brexit Progress Expected At EU Summit
This EU Summit had been earmarked as an important date in Brexit negotiations; however, with the UK dragging its feet over the publication of its paper on the UK – EU post- Brexit relationship, which is now not expected until July, no progress is expected on any major issues surround the UK exiting the EU at this meeting. Instead the EU are expected to giver a stern and fierce warning to the UK over its lack of progress on major issues, such as the Irish border policy. With the clock ticking a no deal Brexit is looking increasingly more likely, which makes it almost impossible for the pound to make any serious headway.
A speech by Andy Haldane BoE Chief Economist and more recently, rate hike voter, could offer some short-term relief to the pound when he speaks at 13:30. Investors will be listening closely for his reasons for shifting his voting allegiance.
Merkel & Migration In Focus
With the euro languishing at around 11-month lows versus the dollar, investors will have plenty to watch today. Whilst German inflation is expected to remain constant in June at 2.2% year on year, any shortfall could pull the euro lower.
Traders will also be keeping a close eye on discussions covering the migrant crisis at the EU Summit. Whilst migration isn’t usually a theme that influences the markets, Angela Merkel is under increasing pressure both at home and abroad to resolve the issue or face the collapse of her fragile coalition government after just 3 months; a move which could pull the euro sub $1.15.
US GDP 2.2% Exp.
The final version of US GDP is forecast to be 2.2% in Q1, which although slower than Q2, Q3 and Q4 2017, is still a very respectable figure. The reading will provide a good distraction from current trade war headlines, although to really rock the dollars boat we would need to see a print below 2% or over 2.5%.