FTSE +14 points at 7384 DAX +42 points at 12487 CAC +15 points at 5180 Euro Stoxx +12 points at 3490
Markets are quiet due to lower summer volumes. The global sovereign rates are slightly softer
The demand in the US dollar remains lethargic as the US congress returns. President Donald Trump urges congressional Republicans to pass the healthcare bill, yet there is no consensus. On the other hand, the probability of a concrete legislation on the ‘phenomenal’ tax cut plans is vanishing for 2017. The fading fiscal outlook takes the pressure off the Federal Reserve’s (Fed) shoulders.
Fed Chair Janet Yellen will speak before the Congress at her semiannual testimony on Wednesday and Thursday. She will likely reiterate the possibility of an additional 25 basis point hike in 2017 and hint at the balance sheet normalisation plans. However, she may refrain from providing further details on the size and the timing of the portfolio normalisation and keep the Fed-hawks on the sidelines for the moment.
Gold extended losses to $1,204 on Monday. The key support is eyed at $1,200 and $1,195 (March low). The temporary pause in global yield rally could lend a support at this level. Breaking below $1,195 could encourage a further decline to $1,180 (January low).
The EUR/USD remained rangebound within the 1.1385-1.1400 area in Asia. The single currency failed to gather momentum on the recent rally in the Eurozone yields to challenge the 1.15 hurdle. Call options should give support at 1.14 at today’s expiry.
Cable shortly slipped below 1.2860 (major 38.2% retracement on June 20 – 29th rise) on Monday. The Bank of England (BoE) hawks could see short-term dip-buying opportunities before the BoE Deputy Governor Broadbent and the bank’s chief economist Andy Haldane’s speeches due today. Haldane has recently expressed his preference for raising the interest rates to cool down the inflationary pressures in the UK. If Broadbent also gives the slightest hint of higher rates, the BoE hawks could give a decent boost to the GBP-bulls, who have recently failed to fight back the resistance at 1.2980/1.3000 zone.
There are no option barriers at 1.30 mark. In contrary, decent call options are waiting to be exercised at 1.30 at Tuesday and Wednesday expiries. The key resistance stands at 1.3045 (major 38.2% retracement on post-Brexit sell-off & 2017 resistance).
The majority of the FTSE sectors took advantage of softer pound and firmer commodities on Monday. The FTSE 100 closed at its 100-day moving average (7370p). The activity in the pound market should offer a clearer direction to the UK stocks. A short-term bearish reversal in GBP/USD, which should involve a slide below the 1.2860/1.2855 zone, could encourage an extension above the 7400p. On the topside, a pound recovery above the 1.2925 (minor 23.6% retracement) should reinforce the resistance at 7400p.
The USD/JPY traded above the 114.00 level in Tokyo. The divergence between the US-Japan yield curve and stronger positive trend are supportive a further rise to 115.00 mark. Intermediate resistance at 114.36 (June double top). Support is eyed at 113.00 / 112.80 (minor 23.6% retracement on June-July rise and 200-day moving average).
Nikkei (+0.52%) and Topix (+0.67%) gained on softer yen.
The WTI crude (+0.29%) trades timidly below the $45 level on discussion that potential caps on Nigerian and Libyan oil production couldn’t suffice to reduce the global glut. In addition, the downside risks increase on fresh news that Indian Oil Corp, India’s biggest refiner, will buy 1.6 million barrel of Mars Blend from the Gulf of Mexico in October due to its more competitive price. This could be the beginning of more trouble for the OPEC’s strategy, given that OPEC efforts to cut production have done little to reduce the global supply, yet apparently have pushed the Middle East prices relatively higher due to restricted regional extraction. This situation could wane speculations of cooperation in the future and continue weighing on energy prices.