Financial market research and analysis

Markets trade on a mixed risk sentiment.

The US dollar extended gains against most G10 currencies, as investors scaled down their dovish Federal Reserve (Fed) expectations following a solid US jobs report in June. The US equities edged lower and the futures extended weakness in Asia. The US 10-year yield consolidates above the 2% mark.

Fed Governor Jerome Powell is due to speak at an event hosted by Boston Fed today and his remarks will be under close watch ahead of his semiannual testimony before the congress on Wednesday and the FOMC minutes. Fed’s Bullard and Quarles will also speak today.

Friday’s job figures in the US have been a good reminder that the market may have gone well ahead of itself when it comes to the pricing of an eventual monetary easing in the US. A moderate easing in interest rates could help counterbalancing the negative impacts of the US – China trade war. Hence at Powell’s testimony, US policymakers will be after any information on whether the Fed will raise the interest rates in the coming meetings and by how much.

The Fed may opt for a 25-basis-point cut to support the market in the foreseeable future; but a 50-basis-point would perhaps be too much for what the economy needs for the moment. The chances of a 25-basis-point cut in July is fully priced in by the US sovereign markets. What may happen beyond July is for sale.

Today, the JOLTS data for US job openings closely watched by the Fed and the White House, and the NFIB small business optimism could give a minor direction to the US markets, but investors remain fixated to the Fed Governor Powell’s testimony and the FOMC minutes. The tough love between Trump and Powell bring some to draw a parallel between Trump’s threats to dismiss the Fed’s governor and the actual ousting of Turkish Central Bank Governor Murat Cetinkaya. But hopefully the independence of the world’s most influent central bank is not at such jeopardy and Powell will be allowed to complete his mandate and to act for the good of the US economy rather than the political ambitions of Mr. Trump during this period.

In Hong Kong, chief executive Carrie Lam said the much-protested ‘extradition bill is dead’, though many would have preferred hearing ‘withdrawal’ instead of ‘dead’. The Hong Kong dollar fell to a week-low against the US dollar, while Hang Seng and Shanghai’s composite index extended losses after Lam’s announcement. It is unsure whether the ‘death’ of the extradition bill would succeed to ease tensions in Honk Kong.

Japanese stocks reversed early gains, even though the yen eased to a five-week low against the greenback. The USDJPY traded at 108.90.

In the gold markets, $1400 is where bulls and bears are fighting for an ounce of gold. Two opposite forces are in game for gold traders. In one hand, the downside correction in risk assets pushes the capital into the precious metal. On the other hand, the US dollar recovery encourages top sellers to hold on to their position for a correction below the $1390 mark. The key support is seen at $1375 level, the major 38.2% Fibonacci retracement.

The FTSE (-0.28%) and DAX (-0.65%) futures hint at a negative open in Europe. Deutsche bank lost as much as 7.3% on Monday in Frankfurt after it suspended dividends for the next two years and ousted 18’000 employees amid exiting equity sales and trading businesses.

The EURUSD tested the 1.12-support after the data showed 3.7% y-o-y contraction in German industrial production. Euro traders will be monitoring the German inflation data on Tuesday. The consumer price inflation in Germany is expected to come in unchanged at 1.6% y-o-y.

All eyes are on the European Central Bank (ECB) meeting minutes due on Thursday. The waning inflation expectations in the Euro area boosted the prospects of a more dovish ECB in the coming quarters. Euro bears could strengthen their position ahead of Thursday’s minutes and increase the pressure for a slide below the 1.12 mark against the US dollar.

Across the Channel, the pound remains under the pressure of the same old Brexit story. A broad-based increase in USD demand puts an additional pressure on Cable, rising bears’ determination to clear the 1.25-support. Pound sterling below the 1.25 mark could help the FTSE holding support at 7500p despite waning appetite in global equities.

British energy stocks remain supported by a cheaper pound, but gains are at risk as oil traders had already priced in the OPEC+ decision to extend production cuts by nine more months to March 2020 and were left thirsty face to a no-surprise decision in Vienna last week.

Brent crude consolidates below the $65 a barrel. The death cross formation (50-day moving average crossing below the 200-day moving average) hints at an increased downside pressure in prices. Meanwhile, WTI crude remains capped by $58.50 a barrel (the 200-day moving average).