The early enthusiasm on Monday left its place to a rangebound, mixed market sentiment.
Emmanuel Macron’s victory encountered a correction sell-off in the euro and the European stock markets.
Nikkei (-0.26%) and Topix (-0.26%) couldn’t find buyers in Tokyo, despite a softer yen. Shanghai’s Composite (+0.06%) and ASX 200 (-0.53%) remained on the back foot, even with an improved sentiment in the energy sector (+1.23%). Hang Seng index (+1.00) diverged positively on the back of an increased demand in information technology stocks (+1.67%).
FTSE 100 opened slightly upbeat in London. Mining stocks rebounded; Glencore (LON:GLEN) (+1.99%), Anglo American (LON:AAL) (+1.8%), BHP Billiton (LON:BLT) (+1.47%), Antofagasta (LON:ANTO) (+1.33%) and Rio Tinto (LON:RIO) (+1.26%) led early gains.
The stronger pound is still a downside risk for the FTSE traders, yet the Bank of England (BoE) hawks seem to refrain Cable from taking over the 1.30 resistance before Thursday’s policy meeting and Quarterly Inflation Report (QIR).
WTI consolidated gains below the $47 level. Buyers are tempted to take a chance on an eventual positive move, provided that OPEC hints at the extension of production cuts at May 25th meeting. Meanwhile, many investors are quite reluctant to take the bet, indicating that extending cuts may not be enough per se, OPEC and its allies may need to envisage deeper cuts. The WTI could extend the recovery to $48.78 (major 38.2% retrace on April – May debasement), if surpassed, will hint at short-term bullish reversal and pave the way for a further rise toward $50. We are prepared for larger swings as the speculators are in charge of the market.
S&P 500 renews record as volatility declines
The volatility in the US stocks continues diving. The VIX index closed at its lowest level since 1993, as the S&P 500 traded at a new record high of $2'401.36. Investors continue buying into the tax reform story, despite the political shenanigans on Mike Flynn and news that he may have been 'blackmailed by the Russians'.
The S&P 500 and the Dow Jones are set for a flat open in New York.
French – German yield spread at lowest since December
With the presidential election behind, all eyes are now on La République en Marche, Macron’s rebranded party, which is due to announce 577 candidates for June’s parliamentary elections on Thursday; some of them from the Republican Party, some from the Socialist party.
Although the political uncertainties in France remain on the headlines, the worries regarding France’s place at the heart of the EU and the Eurozone are no longer a barrier for the macro traders.
In Germany, the March industrial production contracted by 0.7% month-on-month due to weak energy and investment demand. German current account and trade balance improved more than expected on the same month. From a political perspective, news are encouraging for the actual Chancellor Angela Merkel, who ensured a solid victory on Sunday’s regional elections, suggesting that she is on the right track for the national elections due in September.
The EUR/USD retreated below the 1.0915 (minor 23.6% retracement on April – May rise), although the French-German 10-year bond yield spread hit the lowest since December in the aftermath of Macron’s victory. The key support to the present positive trend stands at 1.0849 (major 38.2% retrace).
Aussie, yen soften against the greenback
The USD/JPY extended gains to 113.69. As such, the pair recovered more than half of losses recorded on the period from December – April. Lower safe haven demand and improved US yields are supportive of a further rise toward the 115.00 mark. Intermediate resistance is eyed at 114.60 (major 61.5% retrace on December – April decline).
In Australia, the retail sales contracted unexpectedly by 0.1% on month to March. Disappointing data further weighed on the AUD/USD. The pair extended losses to 0.7335. The pullback toward the 0.7300/0.7290 is underway. Offers are eyed at 0.7455 and 0.7510 (minor 23.6% retrace and major 38.2% retrace on March – May decline).