Financial market research and analysis

A massive global cyber-attack hit more than 200’000 computers in 150 countries since Friday. Businesses across all industries are expected to be affected. The UK’s NHS (National Health Service) warned that many of 8000 GP surgeries could be disrupted for the first time.

The risk sentiment is dull due to cyber uncertainties. The bitcoin is exchanged below $1’800, as cyber-attack hackers claim their victims’ payments in bitcoins.

The total value of the bitcoin market hit $50 billion, which raises questions on the sustainability of such an exponential growth in this perfectly deregulated market. Given the size of the recent attack and the widespread implications caused by the use of the decentralized, non-government controlled digital currency, the bitcoin could be the target for new measures and regulations. The bitcoin was worth $10 in 2012.

Gold consolidated gains between $1’227/$1’233 (minor 23.6% retracement on April – May sell-off) and is expected to advance to $1’245/1’247 (major 38.2% retrace / 200-day moving average) on the back of softer US dollar and buoyant risk sentiment. Intra-day support is eyed at $1’227 (100-day moving average).

Chinese equities driven high on Belt and Road

Asian equity markets were driven by quite a few forces; China’s Belt and Road initiative, firmer oil and commodity prices were among the positive catalyzers at the start of the week.

China’s Belt and Road initiative occupy the global headlines as the emerging market giant pledged to invest an additional 540 billion yuan ($78 billion) in infrastructure spending to boost growth in its peripheral provinces, to increase its global influence, to stabilize the yuan and to temper the capital outflows. The additional spending would feed into the Silk Road Fund (100 billion yuan), loans from policy banks (380 billion yuan) and emerging economies and international organisations (60 billion yuan).

The total value of the construction, mechanical and engineering contracts stood at $126 billion in 2016, 36% higher than a year earlier. Foreign investors are still worried about the capital controls, while Chinese officials warned that the Belt and Road investments are not subject to capital controls. Earlier in the year, China also introduced measures to facilitate financial transactions and hedge the foreign exchange risk to bring investors back on the board.

Hang Seng Index (+0.76%) and Shanghai’s Composite (+0.22%) diverged positively at the start of the week, copper futures traded in the green for the third consecutive session.

The weak Chinese data somewhat dented the appetite. The industrial production grew by 6.5% on year to April, slower than 7.0% expected by analysts and down from 7.6% printed a month earlier. Still, the Belt and Road project keeps investors away from overthinking the Chinese slowdown story.

Nikkei (-0.07%) and Topix (-0.04%) remained on the back foot as the yen traded below 113.50 against the US dollar in Tokyo. The sentiment was bitter as the cyber-attack certainly prevented the safe haven yen from depreciating against the US dollar.

USDJPY buyers are touted pre-112.90/112.33 (minor 23.6% retracement on April – May recovery / 100-day moving average). The key support to the positive momentum stands at 112.00 (major 38.2% retracement). The natural target for the USDJPY bulls is the 115.00 mark. Decent option calls at/above 114.00 are due for expiry throughout this week.

FTSE renews record on softer pound, firmer oil and commodities

The FTSE 100 extended gains to uncharted territories on the back of softer pound, firmer oil and commodity prices.

Mining (+1.46%) and energy stocks (+0.86%) lead gains.

The GBPUSD closed last week below 1.2900, after the Bank of England (BoE) disappointed the hawks at last week’s monetary policy meeting. The failure to fight back the 1.3000 offers could encourage a deeper downside correction in Cable. The key supports to the actual positive trend stand at 1.2778 (minor 23.6% retracement on March – May rise) and 1.2650 (major 38.2% retrace).

WTI gains on Saudi, Russia comments, $50 level in focus

WTI advanced to $48.70. Saudi Arabia and Russia said to be in favour of extending oil production cuts on May 25 meeting.

Despite the recovery in prices, the WTI crude net futures positions continue diving.  Hardly convinced of the mid-term market dynamics, investors continue unwinding positions off the record highs reached on February. The current positive momentum should encourage a further rise to $49.60 (200-day moving average) before the $50.00 mark, yet the mood toward the topside is still very much uncertain.

To us, the real challenge will the path to $53-55 zone. Provided that the OPEC’s comments did little to reverse the winding trend in the futures markets, the extension of OPEC’s production cuts per se may not be sufficient.

Markets demand deeper cuts and require that production cuts are reflected in the group’s export data. The latter could raise tensions between the world’s leading producers, which have seen their export revenues melting since nearly three years.

Euro to retest the 1.10 mark

The EURUSD consolidated gains above the 1.0920 at the start of the week; the single currency was boosted by news that German Chancellor Angela Merkel’s CDU defeated its rival, SPD, in Northern Rhine-Westphalia, one of the country’s most populist states. In fact, the SPD saw the lowest support since the World War II, suggesting that Angela Merkel has little to worry about the German federal election due in September.

The euro-dollar could benefit from a renewed positive wave toward 1.1020 (post-Macron high), after having successfully held the ground near the 38.2% retracement on April – May advance, 1.0849, through the post-Macron profit taking. The key mid-term resistance is eyed at 1.1074 (minor 23.6% retrace on post-Trump sell-off).