Financial market research and analysis

The FTSE 100 first dived to 7489p then rebounded past 7525p at the London open. Fresnillo rallied past 2% as gold extended gains.

Lloyds (+0.97%) shares were well bid, as Britain sold its remaining stake in the bank, emotionally marking the end of a painful, challenging and stressful bailout following the 2007 subprime crisis.

In line with expectations, British wages improved by 2.4% in the three months to April, from 2.3% printed a month earlier. Unemployment rate dropped to four decade low. Solid wages growth could translate into higher consumer demand, rising inflationary pressures and increase the hawkish pressures on the Bank of England (BoE). The latter reasoning is GBP-positive. Yet, the 1.30 level against the US dollar remains a solid resistance and a major taboo. Stops are eyed above

WTI factors in nine-month output cut extension, EIA data in focus.

The WTI crude charms top sellers above the 200-day moving average ($49.60). The actual oil prices factor in a nine-month extension in OPEC/Russia production cuts. The market apparently demands more for a sustainable break above the $50 level.

The US oil inventories may have contracted by additional 2.5 million barrels last week. The weekly EIA data is due later in the session and a soft read could give a boost to the energy markets. Top sellers are eyed at $50 and above.

Euro-bulls broadly in charge

The EURUSD extended gains to 1.1122. The positive breakout is a combination of a higher conviction regarding the Eurozone integrity and the broadly offered US dollar. The next eye-catching target stands at 1.1300, the US election high. Supports to the April – May positive trend stand at 1.0972 (minor 23.6% retrace on April – May rise) and 1.0895 (major 38.2% retrace).

The EURGBP hit the 200-day moving average for the first time in six weeks. Although the short-end of the European rate curve do not suggest any imminent change in the European Central Bank (ECB) monetary policy, stronger euro is on the menu of the euro-bulls, especially face to a presently topped Cable quotation.

USD back to pre-Trump levels, US stocks expected to open downbeat

The US dollar continues losing blood. The DXY index has now completed its post-Trump roundtrip and is back to the pre-election levels. Talks around the FBI and Russia keep the risk appetite limited and the US political agenda on the backstage.

The US 10-year yields have tested the 2.30% level on the downside as the US Senate leader Mitch McConnell warned that Trump’s major fiscal plans would be deficit-neutral, in opposition to President’s earlier will to cut the deficit for a healthier long-term growth. Expectations of massive infrastructure spending and major tax cut plans weigh on the US dollar, first, because the budget deficit is straightforwardly negative for the national currency and second, because Trump’s administration plans are so sharp that they have had, and should continue having hard time to be brought to life. This takes some pressure off the Federal Reserve’s (Fed) shoulders. The government’s inability to expand the fiscal policy at the pace promised by Trump, automatically reduces the inflation expectations and gives the Fed more time for normalizing its rates and its balance sheet. The expectations of a June rate hike remain high, 97.5%, but many investors are brought to think that they may have gone well beyond themselves.

US stock futures tanked on the mounting anxiety concerning the FBI turmoil. The Dow Jones and S&P500 futures are down by 87 and 10 points respectively.

The S&P500 is expected to open 14 points softer at $2'386, the Dow is called 118 points lower at $20'862.

Golden cross on daily gold chart

Gold hit the $1’245 target, the major 38.2% retracement on April – May decline. Two popular technical indicators are in favour of a further rise in gold prices. First, a break above the $1’245 suggests a short-term bullish reversal. On top, the golden cross formation (50-day moving average crossing above the 200-day moving average) should enhance the positive momentum and fund a reasonable base for a further advance toward $1’255/1’260 (50% retrace / April support before sell-off acceleration).

Yen desperate gain on US dollar sell-off

The yen (+0.55%) is the biggest G10 gainer against the greenback for the second consecutive session. The USDJPY is set to challenge the 100-day moving average (112.30) on the downside. Nikkei (-0.57%) and Topix (-0.53%) are discontent face to the USD-funded yen appreciation. Japanese industrial production retreated by -1.9% month-on-month in March and the machine orders grew at a slower pace than expected by analysts during the same month. Weak economic data is, in theory, negative for the yen, however, the FX markets are highly contaminated by the US dollar weakness.

China ETFs are up by 17% since December

Shanghai’s Composite (-0.27%) is still finding hard to find buyers.

Yet, although the mainland and Hong Kong stocks have been lacking momentum on the Belt and Road project, the iShares China large cap ETF tells a different story. Up by 16.76% since December, the iShares China ETF has nearly recovered half of losses recorded from mid-June 2015 to the first quarter of 2016.

We remind that President Xi’s positive stance for globalization, led by the Belt and Road project, generate both enthusiasm and scepticism. The ‘project of the century’ failed to gather an extended international collaboration due to the economic and political implications for the Eurasian nations. Still, investment plans are big and large Chinese companies will benefit from massive investments. Apparently, the US based ETFs appear to be a safer bet for the China-bulls, as many remain reluctant to place funds due to fears regarding capital controls and restricted financial transactions with China.