Financial market research and analysis

The FTSE opened upbeat. Mining stocks (+0.54%) were better bid on improved copper futures, which were pushed higher on the US Commerce Secretary Ross’ positive comments regarding the trade relations with China, although the Chinese PMI data has been a disappointment.

Energy stocks (+1.12%) lead gains on solid first quarter results from British Petroleum.

Gains across the FTSE could remain limited due to the relatively stronger pound and globally softer oil prices. Offers are eyed at 7300/7305p (50-day moving average).


Cable opens downbeat in London, weekly trend remains positive

The GBPUSD slipped below the 100-hour moving average (1.2892) and is preparing to test the 200-day moving average (1.2850) on the downside. Despite the bearish intraday dynamic, the weekly trend remains positive with minor support eyed at 1.2761 (minor 23.6% retracement on March – April rise) and the critical support at 1.2636 (major 38.2% retracement).

UK local elections are due on Thursday and could result in a significant shift from Labour to Conservatives before the upcoming snap election. The latter scenario could be an additional positive push for the pound, while in case of a disappointment in the Tories' camp, the pound could give back a part of the recent gains.

Meanwhile, buyers continue targeting the 1.30 psychological threshold. The golden cross formation on the daily chart (50-day moving average crossing above the 200-day moving average) could increase the appetite in the pound against the US dollar. Above 1.30, solid resistance is eyed at 1.3040 (major 38.2% retracement on post-Brexit sell-off), if surpassed, would signal a mid-term bullish reversal.


BP’s Q1 results please investors

BP (+2.82%) started the session upbeat on the back of better-than-expected first quarter results. The 1Q adjusted net income printed $1.51 billion, beating analysts’ forecast of $1.21 billion. The adjusted EPS (earning per share) came in at 7.74c versus 6.42c expected. The first quarter dividend per share, 10c, pleased investors.

Royal Dutch Shell (+0.77%) traded in the green on encouraging sector results.


Oil under pressure on improved Libyan, US output

WTI closed below the 200-day moving average ($49.32) on news that Libyan output recovered to the highest levels in three years and the US producers added nine oil rigs last week, pushing the total to the highest level since April 2015. In this context, OPEC’s efforts to limit production to sustain prices are increasingly less efficient. The downside prevails, as the $47 could be thought as a reasonable target for sellers. The upside risk would be an unscheduled announcement from the OPEC members to halt the bleeding and/or softer expansion in US oil inventories (due on Wednesday).


Euro ranged post-PMI data 

The EURUSD is ranged between 1.0850/1.0950. Trend and momentum indicators remain bullish, though with a stagnant momentum. The daily MACD (Moving Average Convergence Divergence) remains positive, yet shows signs of toppish development. On the other hand, the RSI (65%) suggests that the market is not in the overbought territory to trigger a synchronized profit taking on the long positions. The manufacturing PMI data across the Eurozone came in line with analysts' expectations and had little to no impact on the euro prices.

Traders remain calm regarding the second round of the French presidential election, due on May 7^th. According to the latest opinion polls aggregated by Bloomberg, Emmanuel Macron has 61% chances of becoming the next French President, versus 39% for the anti-EU, anti-euro Marine Le Pen. We remind that Marine Le Pen has also been victim of fraud allegations last week. Solid EURUSD offers are touted at 1.10 mark. The key short-term support to the current positive trend is eyed at 1.0860 (minor 23.6% retracement on April recovery) and 1.0805 (major 38.2% retracement). Given that Macron-win is nearly fully priced in, we could see a buy-the-rumour and sell-the-fact in case of a failure to take over the 1.10 level for the second consecutive week. The US dollar leg will likely be the main driver throughout week, due to the FOMC decision and the US labour data. The major endogenous downside risk would be a surprise rise in Le Pen’s popularity. 

Fed decision, US labour data on the agenda

The US has a busy economic agenda this week, with the ADP employment report and the FOMC decision due on Wednesday and April nonfarm payrolls due on Friday.

The Federal Reserve (Fed) is expected to maintain the status quo at this week’s policy meeting, as members diverge on whether to speed up the rate normalization process, while shrinking the balance sheet, or stay seated on a more balanced outlook given that Donald Trump’s major tax cut plans still lack details on the financing leg and therefore could not be approved immediately. The Fed is expected to raise the Fed funds rates two to three times before the end of the year. We would be looking for more details regarding the balance sheet shrinkage plans and its potential impact on the US rate policy.

The Congress reached an agreement to fund the government until the end of September, dissipating short-term worries vis-à-vis a government shutdown.


NASDAQ at record high, US stocks volatility limited on variety of Trump news

There is an avalanche of news regarding Trump's economic and geopolitical policies.

According to the latest news, the US President Trump is willing to raise the US gas tax in order to finance the infrastructure spending.

He also said he would consider splitting up the big banks. Bank shares shortly sold off, then rebounded as investors were rapidly convinced that separate entities could facilitate the lending for smaller businesses, allow each entity to concentrate on its core business, hence be worth more than if combined.

From the geopolitical perspective, the situation with North Korea remains tense. Nevertheless Trump said he would be ‘honored’ to meet the North Korean President Kim Jung Un, ‘under the right circumstances’ to avoid a potentially big clash.

While the reflation trade losses momentum on delaying tax reforms from the Trump administration, there are still signs of optimism that encourage buyers to enter new positions in the US stock markets.

NASDAQ 100 hit a new record of $5’5640.478, as NASDAQ Composite index traded at the all-time high of $6’100.732 on Monday. The Dow Jones closed the session slightly lower, while the S&P500 traded four points firmer.

The VIX index fell to 9.90% from 16% seen mid-April. Decreasing volatility suggests that the current rise in the S&P500 stock prices are not a source of anxiety for investors.

The US stock markets are set for a positive open.

The Dow Jones is called 18 points firmer at $20’931. Likewise, the NASDAQ 10 and the S&P500 are eyed 6 points and 2 points higher at $5’635 and $2’390 respectively.


RBA upbeat on inflation, growth

The Reserve Bank of Australia (RBA) maintained its cash rate target unchanged at 1.50%, ‘consistent with sustainable growth and achieving inflation target over time’.

In its accompanying statement, the bank stressed out that the highly indebted households’ capacity to spend could weigh on growth, warned that the high Chinese debt remains a risk in the medium term and highlighted that investment in non-mining sectors remains low, which results in a situation of high dependency between the value of the Aussie and the global commodity prices.

In fact, iron ore future prices plunged as much as 46% since March and the headwinds weighed on the Aussie, which traded from 0.7750 down to 0.7440 against the US dollar over the same period. The slower recovery in the commodity prices will likely keep the RBA’s stance soft regarding its monetary policy, at least for a longer period than anticipated at the beginning of the year, when the Trump-reflation rally had picked up an impressive momentum.

The AUDUSD was upbeat posterior to the RBA decision. The positive intraday momentum sent the pair above its 200-day moving average (0.7443), yet the slower than expected manufacturing expansion in China could dent the intraday appetite. Resistance is presumed at 0.7575 (50 and 100-day moving averages) before the 0.7600 mark.