FTSE flat at 7425
DAX -39 points at 12056
CAC -9 points at 5020
Euro Stoxx -10 points at 3438
The US dollar made a soft start to the week after the Federal Reserve (Fed) delivered a ‘dovish’ rate hike at last week’s monetary policy meeting. In addition, the G20 meeting revived worries about the US’ trade protectionism as finance chiefs were brought to drop a reference to fight protectionism in their joint statement. Several leaders were left frustrated with the US’ position regarding the global trade under Trump administration, including China, Japan, Russia, Germany and France
The uncertainties regarding the US’ relationship with the rest of the world weighed on equity traders’ sentiment. As the world’s number one economy is preparing to set significant barriers, investors are increasingly worried. How will the US protectionism affect the US companies’ overseas businesses and how much value would it shred from the US stocks’ value, if any? Will the US behavior be a game changer for the international trade dynamics? How fast and by how much will the world’s giant close its doors to the rest of the world? And finally, given the actual developments, how long could the US defend its position as the world’s leader?
The Dow Jones (-0.10%) and the S&P 500 (-0.13%) closed on a negative note on Friday, while Asian traders stayed away from the US equity futures at this week’s open: Dow Jones futures (-0.11%), SPX futures (-0.13%), NASDAQ futures (-0.15%).
Still, Japanese PM Shinzo Abe and German Chancellor Angela Merkel had good news, as they backed the idea of removing barriers to support free and fair trade. Their common will to drop trade barriers revived appetite in the euro and the yen. The yen also benefited from safe heaven flows at the start of the week, although the markets in Japan were closed due to the bank holiday.
All G10 currencies, except the pound, gained against the US dollar in the Asian trading session. The market turned flat into the European open.
Money flew into Japanese yen. The USD/JPY traded below 112.50 for the first time in February. The MACD (Moving Average Convergence Divergence) indicator stepped in the bearish zone, suggesting that the USD sell-off against the yen is gaining momentum toward 111.60 (February support). Below 111.60, the USD/JPY will face important mid-term technical levels. The Fibonacci’s 50% level on post-Trump reflation rally, 110.55, is seen as the critical support before the 110.00 psychological mark.
The EUR/USD is looking to fight back the 1.0782 (Friday high) to reach 1.0820/1.0830 (Fibonacci 50% retracement on post-Trump decline / 2017 resistance). If surpassed, the pair could target the 200-day moving average, 1.0858 for the first time since Nov 9th, the US presidential election.
Meanwhile, limited risk appetite and softer US yields continue encouraging inflows back into gold holdings. Gold extended gains to $1235. The strengthening positive momentum suggests a recovery toward the 200-day moving average, $1262. The key support is eyed at $1210/1200. The SPDR Gold shares, the world’s biggest gold ETF, gained more than 2.5% since the Fed’s announcement.
On the other hand, the WTI crude traded rangebound near its 200-day moving average, $49. Investors are undecided regarding OPEC’s plans to deal with the increase in the global oil supply. The US inventories stand at historical high levels, although the inventories unexpectedly retreated by 237K barrel according to last week’s EIA data. As of today, we know that the US has no will to contribute to global production cut; instead, President Trump aims to decrease the US’ oil dependency to the rest of the world. In 2015, the US imported roughly 40% of its oil from Canada and 11% from Saudi Arabia. In 2016, the EIA data printed 38% and 12% respectively.
FTSE 100 (+0.12%) closed flat on Friday’s session. Stronger pound pulled the UK’s biggest caps down to 7402p. The index is set for a flat open, yet downside risks prevail. Softer oil and commodity prices could weigh on energy and mining stocks after the US delivered a protectionist stance at the G20 meeting. The Bank of England (BoE) hawks could send the pound above the 100-day moving average (1.2408) against the US dollar.
The UK’s inflation data is due on Tuesday and could restate the rising inflationary pressures in the UK. The consensus for the headline inflation is 2.1% year-on-year in February versus 1.8% printed a month earlier. The core inflation may have climbed to 1.7% year-on-year from 1.6% a month earlier. After the MPC delivered an unexpectedly hawkish stance at last week’s monetary policy meeting, a solid inflation read could easily boost the BoE hawks, encourage a further appreciation in the pound across the board and dent the appetite in the FTSE.