Financial market research and analysis

The FTSE 100 remained capped below 7500p at the open. The heavy sell-off in commodities following China’s debt rating downgrade has taken its toll on the UK’s mining stocks (-1.10%). Copper futures cheapened by 1.29%, as iron ore future slid more than 5%.

Glencore (-1.70%) warned that there is no certainty regarding the Bunge deal. The deal would increase Glencore’s net debt ratio from 0.6 to 1.2 times the EBITDA according to Barclays’ analysts, which would decrease the probability of a special dividend. To us, it could also interfere with Glencore’s efforts to reduce and restructure its debt.

On the other hand, firmer oil prices gave a little boost to BP (+0.32%) and Royal Dutch Shell (+0.28%) shares before May 25th OPEC meeting. With the support of Iraq and Russia, the OPEC is expected to extend the supply cuts by another nine months. The barrel of WTI trades above $51.40. Resistance is eyed at $53/55.

Marks & Spencer (-1.24%) fell on disappointing results. M&S’s home and clothing sales fell by 5.9% in the fourth quarter, versus -3.7 expected by analysts. The company said that 2017/2018 clothing & home space sales should decline by 1-2% and the gross margin should be +25 to -25 basis points. On the other hand, the FY adjusted profit before tax beat estimates, as company printed GBP 613.8 million versus GBP 596 million forecast. The company said that the cash generation reduced debt by GBP 204 million. The final FY dividend is announced at 11.9p per share.

Cable failed to clear the mid-term resistance at 1.3044, which stands for the major 38.2% retracement following the Brexit sell-off. The lack of conviction for a mid-term bullish reversal in the pound against the greenback hints at a deeper downside correction. The next supports stand at 1.2824 (minor 23.6% retracement on March – May rise), 1.2750 (50-day moving average) and 1.2687 (major 38.2% retrace).


Euro falls on no Greek deal

The EURUSD bounced back from 1.1268 yesterday and extended weakness to 1.1171 in Frankfurt.

The Eurozone officials and the IMF failed to reach an agreement on the Greek debt relief. Northern European nations refused to sign off the third bailout without the IMF participation, and that despite the Greek efforts for additional pension cuts and tax increases. The IMF partaking could, according to the opponents, bring some thoroughness to the deal.

Greece is due to pay back 7.3 billion euro worth of loans in July. It feels like it could be another scorching hot summer in Greece.

Given the strengthening negative momentum, the euro could have temporarily topped gains against the greenback. The disappointment on the Greek bailout deal suggests the continuation in the short-term pullback. The key support levels to the current positive trend are 1.1101 (minor 23.6% retracement on April – May rise) and 1.1000 (major 38.2% retracement).


Traders will be hunting hints in Fed minutes

The US dollar firmed against all G10 currencies after the presentation by the Office of Management and Budget Director Mulvaney revived optimism for Trump’s major tax cut plans. On top, the US PMI pointed at slightly softer manufacturing activity, yet a solid expansion in services sector in May, similar to France and Germany.

The US stock indices edged marginally higher on Tuesday. The Dow Jones gained 0.21%, the S&P500 and the NASDAQ closed the session 0.18% and 0.08% higher respectively. Bank stocks (+0.92%) led gains in the Wall Street.

But the renewed suspicion about Trump-Russian ties amid the former CIA chief’s comments dented the appetite in the early hours of trading.

The US equity futures refuse to build on top of the Tuesday session’s gains. The US equities are set for a flat open in New York.

The DXY index held the bottom of the range near the lowest levels since Donald Trump’s election, the US yields improved to the highest levels in four days.

The Federal Reserve (Fed) will release its May meeting minutes later in the day. Markets are ready to catch any clue regarding the likelihood of an interest rate hike at the FOMC’s June meeting.

Kashkari, known to be a member of the Fed’s dovish camp, said he would prefer to see more economic data before making a decision in June. He added that the balance sheet normalisation should bring some additional tightening, yet he doesn’t know by how much.

The activity on the US sovereign markets price in a 100% probability for the June hike before the release of the minutes.


Gold reverses gains on improved risk appetite

Gold retraced to $1’250. The key short-term support stands at $1’245 (200-day moving average & 38.2% retracement on April – May decline). A break below this level could encourage a further slide to $1’233 (23.6% retrace & 100-day moving average). The resistance is eyed at $1’265 (major 61.8% retracement), if surpassed, should give a stronger base for a further bullish development toward $1.276 (minor 76.4% retrace) before $1’295 (April peak).


China debt downgraded at Moody’s, AUD offered

Moody’s downgraded Chinese debt to A1 from Aa3 and revised the outlook from negative to stable.

The yuan recorded its biggest slump in two weeks. The People’s Bank of China (PBoC) injected 40 billion yuan via 7-day and 50 billion yuan via 14-day reverse repurchase contracts.

Shanghai’s Composite erased up to 0.80% in the morning session, yet managed to reverse losses on the back of the PBoC liquidity.

The Aussie (-0.25%), which is known as the best G10 proxy for the Chinese economy, has been the biggest loser against the USD among the major currencies. The AUDUSD consolidated below the 0.7500 level, after having traded at 0.7517 on Tuesday. The key Fibonacci resistance, 0.7540 (50% level on March – May decline), has not been breached on yesterday’s rise. The pair is back below the 38.2% retracement, 0.7490. The intra-day bias is negative and could encourage a deeper correction to 0.7430/0.7400.