Financial market research and analysis

The FTSE 100 renewed record regardless of the pound bulls. The index extended gains to 7480p, as Vodafone (+4.07%) rallied on solid results. The 7500p corner is just around the corner; neither the Brexit worries nor the stronger pound seem to weigh on the FTSE’s positive trend.

The opposition party leader Jeremy Corbyn is expected to unveil his plans today.

easyJet (-5.42%) shares plunged as the airline company reported a record, worse-than-expected first half loss. easyJet’s revenues were severely hit by the pound’s depreciation against the US dollar. However, the GBP-denominated company remained optimistic on its core business growth, the loyalty of its clients and said to invest $3.8 billion in new Airbus SE aircrafts. At her interview, the company CEO Carolyn McCall said that the Bloomberg headlines were ‘exaggerated’, highlighted that the fleet growth is ‘purposeful and strategic’, adding that there future options with Airbus are flexible both on the upside and the downside.

Cable recovered above to 1.2958 prior to the inflation data and is expected to remain well bid on the back of a faster than expected inflation report in April. The UK’s headline inflation advanced to 2.7% versus 2.6% expected, as the core inflation, excluding food and energy, may have bounced to 2.4% for the first time since October 2013.

The $1.30 hurdle is back on the radar. This being said, the rising inflationary pressures revived to a limited extent, given that in its Quarterly Inflation Report, the BoE warned that the inflationary pressures could increase throughout 2017, but should ease starting from next year.

Euro rallies to fresh six-month high

The EURUSD advanced to 1.1036 for the first time since the US presidential election.

The single currency surpassed the post-Macron peak, 1.1023 (post-Macron high), and is set to extend gains toward 1.1074 (minor 23.6% retrace on post-Trump sell-off).

The golden cross formation on the hourly chart (50-hour moving average crossed above the 200-hour moving average) encourages traders to buy into minor price pullbacks.

The main support to the continuation of the April – May positive momentum stands at 1.0925 (minor 23.6% retracement on April – May rise) and 1.0857 (major 38.2% retrace).

S&P500 recorded its highest close in history

The S&P500 closed yesterday’s session above $2’400 for the first time in record and is expected to open slightly softer at the US market open. The information technology and energy stocks are leading the index higher, while the banking stocks see limited demand as analysts readjust their inflation and rate expectations.

Although there has been no major news that could’ve demotivated the Fed hawks, the activity in the US sovereign markets hinted at a lower incentive to push the US dollar and the US yields higher.

The probability of a June interest rate hike eased to 97.5% after hitting 100% a week earlier.

The US 10-year yields hold the ground at the 2.30% level, yet the stagnation in the US yields drives the capital toward popular carry currencies, such as AUD and NZD and to non-interest bearing assets, such as gold.


Gold recovery has room before meeting mid-term sales

Gold extended gains to $1’237 on Monday and could be expected to aim for a further recovery towards $1’245/1’247 (major 38.2% retracement on April – May decline / 200-day moving average).

Soft US yields are supportive of the yellow metal in the near term. Softer June Fed rate hike expectations could encourage a short-term bullish reversal in gold this week.

Though, long-term investors would seek opportunities to sell the tops given that the Fed is still expected to raise interest rates two more times this year. Solid mid-term resistance is eyed at $1’255 and $1’264 (major 50% and 61.8% retrace on the recent fall).

China’s Belt and Road failed to boost markets, raised worries instead

The Chinese stocks gave back gains as the Belt and Road initiative bumped into major political and financial concerns. The Australian ASX 200 added a tiny 0.21%, as iron ore failed to hold on to the early bounce in prices.

The Chinese project seems to have missed the point and clearly failed to revive the global reflation story so far.

In one hand, China’s increasing influence on world economics prevent several world leaders including EU and India, from voicing further enthusiasm about the project. India even boycotted the ‘project of the century’ warning that the latter ignored ‘core concerns about sovereignty and territorial integrity’. On the other hand, investors are reluctant to jump in with both feet due to the capital controls and other financial restrictions imposed by the Chinese government.

Shanghai’s Composite (+0.74%) started the day in the negative territory, yet reversed gains into the session close. 

The AUDUSD remained bid above the 0.7405, yet the recent debasement in iron ore prices remain a major concern for the Australia’s finances and it is fair to say that investors didn’t really buy into China’s massive investment projects.

In its most recent meeting minutes, the Reserve Bank of Australia warned that a strong AUD could complicate the economic adjustments.  

Although, the current environment is plausible for carry traders, news that hedge funds are ‘giving up on the Australia dollar’ (source: Bloomberg) could keep the topside limited pre-0.7488/0.7500 (major 38.2% retrace / psychological resistance).