Global stock indices and futures made a positive start to the week.
London woke up to another sad day on news that a vehicle hit pedestrians past mid-night near the Finsbury Park. Tragic news amplify tensions in the UK politics as the Brexit negotiations formally begin today, with Theresa May having secured no coalition after losing the majority government on June 8 snap election.
Cable started the week downbeat and traded between 1.2744 and 1.2798 in Asia. The pound remains rangebound against the US dollar between 1.2658 / 1.2824 (100-day moving average / minor 23.6% retrace which has acted as double top resistance in June). A positive breakout should see intermediate resistance at 1.2980 (June high) and 1.3000 (psychological level) before the critical mid-term resistance at 1.3044 (major 38.2% retrace on post-Brexit sell-off). A negative breakout could encourage a further slide to 1.2577 (50% level) and 1.2536 (200-day moving average).
The FTSE 100 surpassed the 200-day moving average (7505p) at the London open, as soft pound attracted investors in the UK’s 100 largest caps before the start of the official Brexit negotiations today.
All sectors opened higher. Energy (+1.03%) and mining stocks (+1.01%) lead gains. Markets lean towards a ‘softer’ Brexit, although the downside risks prevail.
In France, President Emmanuel Macron gained a historical majority in the second and final round of the parliamentary election in Sunday. Macron’s one-year-old République en Marche secured 350 seats in 577-seat National Assembly. Although Sunday’s election outcome has been the best performance in more than 15 years, there was no such enthusiasm due to the all-time low participation rate of 44%, which is 10% lower than the preceding historical low. As a result, Macron-win had little-to-no impact on the euro markets at the open. The EURUSD fluctuates near the 1.12 mark, mid-way between the solid 1.1300 resistance (Trump Election Day peak) and 1.1123 (minor 23.6% retracement on April – June rise, which was significantly reinforced by Macron’s election as President of France).
The CAC 40 rallied to €5’326 in the aftermath of the Macron-win, as euro remained little changed. EURGBP: golden cross
The EURGBP saw its 50-day moving average crossing above the 100 and 200-day moving averages. The formation of golden cross could limit the euro’s downside against the pound this week, revive buyers for a recovery to 0.8868 (June high), before 0.8897 (major 61.8% retrace on September – April decline). Solid resistance is eyed at this level, due to the surprise hawkish shift from the Bank of England (BoE) at the June monetary policy meeting. US stocks set to renew record
The US stock futures are solidly bid at the start of the week. The Dow Jones futures were up by 55 points, NASDAQ and S&P500 futures traded 29.25 and 6.75 points higher into the European open.
The VIX index remains comfortably relaxed, 10.38%. There are no signs of anxiety in the US stock markets despite trading at frequently renewed record levels since nearly eight months.
The Wall Street daily rolling index traded at a fresh record of $21’424.60. Gold under pressure
Gold extended weakness to $1’251. Traders are focused on $1’245 (major 61.8% retracement on May – June rise) and $1’238 (200-day moving average) in the continuation of the June’s downside correction. Japanese trade surplus wanes on stronger yen
Japanese stock markets started the week on a positive note. Nikkei (+0.62%) and Topix (+0.63%) gained as yen softened on surprisingly soft May trade figures.
Japanese trade balance unexpectedly turned negative in May, fell from 481.1bn to -203.4bn yen, versus 43.3bn yen expected by analysts. Exports grew less than estimated and imports were unexpectedly higher as the yen strengthened by 4.45% during the second half of the month.
Soft data may revive the Bank of Japan (BoJ) doves before the release of the last week’s meeting minutes due on Wednesday. Stagnant US yields could however cap the upside potential. Resistance is eyed at 111.40 – 112.15, area including 50, 100, 200-day moving averages and 39.2% retracement on January – April decline). Will China’s A-shares be part of the MSCI global indices?
It is an important week for Chinese stocks, as MSCI announces whether China’s 6.8 trillion yen worth onshore stock market will finally be part of its global benchmarks, MSCI China and MSCI EM.
Chinese stocks were turned down three times before, mostly due to capital controls, trading restrictions and pauses. Morgan Stanley analysts give just above 50% chances for a positive outcome.
A fourth rebuff could squeeze the mainland stocks later in the week, traders should remain alert to higher volatility and downside risks. Hong Kong stocks (+1.12%) outperformed the Shanghai’s Composite (+0.68%) at the Monday's session.