A QUICK LOOK AT GLOBAL FINANCIAL MARKETS
Tumbling commodity prices as well as rise in China interbank rates this week to a level not seen in the last two years mainly due to President Xi’s statements about regulatory framework to manage financial risk (i.e. shadow banking system) have somewhat dented the risk appetite in Asian markets. Both mining share prices and commodities dependent currencies such as ruble have tumbled.
China: Market will follow trade balance and inflation this week in China. It will be announced on Monday at 10:00 a.m. (GMT+8) and is important for global markets as it will provide hint over Chinese growth. Exports are expected to post 10.4% growth in April, down from 16.4% while imports were up 20.3% in March and is expected to come down to 18.0%. Despite some slowdown compared to a month ago, growth expectations are still strong and realization in line with market consensus or better than previous month will confirm the strengthening in economic activity in China. This may have positive market reaction amid negative reverberations of declining commodity prices. Inflation to be announced on Wednesday is expected to slightly pick up to 1.1% y/y from 0.9% in March. No material market impact should be expected, absent a major surprise.
India: Inflation will be closely followed in India this week. Y/Y inflation is expected to ease to 3.7% in April, from 3.81% a month ago. Despite the ease in inflation which slid below Reserve Bank of India’s 4% target, no rate change is expected from the Bank as RBI recently released new fiscal year projections which suggests a pick up in inflation to 5.0% in the second half of the year. Yet, higher deceleration in inflation than expected may trigger a support for the currency.
Brazil: Inflation to be announced on Wednesday at 9:00 a.m. (UTC-3) will be the main release in Brazil. Market consensus is a drop to 4.09% in April from 4.57% a month ago. Market would appreciate deceleration in inflation as it would trigger rate cuts from the Central Bank and spur growth in Brazilian economy. Real, which was hovering around 3.176 by end week may positively be affected in such realization.
Turkey: In Turkey, industrial production and balance of payments will be the main releases of the week. Industrial production growth is expected to be 2.4% y/y in March according to calendar unadjusted series. Note that industrial production posted 1.7% contraction in February. Any weakness in production would lead to a negative reaction in market as markets seek a hint of strong growth thanks to measures and incentives taken in the last few months. Balance of payments in the meantime is expected to generate $3.1 bln deficit in March which would lead to a drop in 12 month rolling current account deficit from $33.7 bln to $33.1 bln. Such realization would be considered positive for the currency.
French elections which is almost certain to end with Macron’s victory combined with growth signals in the peripheral Europe seems to have lead investors downplay ongoing risks. Though UK elections down the road does not seem to generate a market unfriendly outcome, political agenda with German federal election in September and ongoing Brexit process combined with fragile banking system in several countries will continue to weigh on markets. EUR/USD is having a rally against dollar thanks to confirmed political stability and rising growth.
US: Several Fed Governors will be speaking this week and provide signals to the market about possible Fed moves in the second half of the year. Bullard and Mester will speak on Monday at 8:35 a.m. and 8:45 a.m. respectively, while Rosengren and Kaplan will follow on Tuesday at 1:00 pm and 4.15 pm local time. Dudley will speak on Thursday at 6:25 p.m. and finally Evans will speak at 9:00 a.m. on Friday. Among data releases, inflation to be announced on Friday at 8:30 a.m. will be the main market mover in US this week. Headline inflation is expected to slightly ease to 2.3% in April from 2.4% a month ago while core inflation is expected to remain flat at 2.0%. Deceleration in headline inflation may prompt investors to increase risk appetite though they price in a rate hike in June. DXY may get higher should realization exceed expectations. Conversely, a worse than expected realization would delay Fed rate expectations and support EM economies.
UK: In UK, expected slowdown in early growth indicators is yet to be seen after Brexit but industrial production to be announced on Thursday at 8:30 a.m. is expected to ease to 2.1% in March from 2.8% a month ago. Any realization better than expectations would lead GBP/USD to rise above 1.30. Yet, rate setting decision will be more determinant for the fate of GBP/USD this week. BoE will hold its rate setting meeting again on Thursday at 11:00 a.m.. No rate change is expected however statements will closely be followed by the market.
Eurozone: In Eurozone, industrial production will be the only material release this week. In line with other growth indicators market consensus on industrial productions is pointing to a recovery in March. Data is expected to accelerate to 2.3% from 1.2% a month ago. This would further support EUR/USD which is pricing political stability and growth in the Eurozone.
EURUSD - Decision Time For France. Nationalist Le Pen and Socialist Macron candidates in run off for French Presidential Election in this Sunday. After Election, we may see dramatic action behind the Euro in the market. Last week, the EURUSD pair showed an upward movement and closed week above the major support level of 1.0980. As long as the price sustains above 1.0980, we think bullish view may gain momentum and we will face resistance levels at 1.1050 and 1.1111. On the other hand, if the price drops below 1.0980 again, the next support level will be at 1.0920. Support: 1.0980-1.0920-1.0885 Resistance: 1.1050-1.1111-1.1160 GBPUSD - The GBPUSD pair found buyers from the 1.2860 daily support level and reached the 1.2985 resistance level last week. In the event that the upward movement continues above 1.2985, the next resistance level will be at 1.3120. On the other hand, if the price shows a downward movement, we will face 1.2860 and 1.2775 as support levels. However, As long as the price sustains above 1.2860 on a daily basis, the bullish action may dominate. Support: 1.2860–1.2775 –1.2685 Resistance:1.2985–1.3120-1.3260 USDJPY - The positive view is behind the USDJPY currency and it hit the resistance level of 112.75 last week. If the risk on mode continues in the market and the pair rise above 112.75, the next resistance level ewill be at 113.60. On the other hand, if the pair shows a downward movement, we will follow support levels at 111.90 and 110.50. However, as long as the currency sustains above 111.90 on a daily basis, we think the bullish outlook may dominate. Support: 111.90-110.50-109.75 Resistance: 112.75-113.60-114.80 GOLD - U.S. Non-Farm Payrolls data was released last Friday,which was better than expected. Gold price dropped to the 1226 key support level. However, as long as the price remains stable above 1226, we expect the downward trend may lay over and we will watch resistance level at 1236 and 1255. On the other hand, if the price drops below 1226, the next support level will be at 1210. Support: 1226-1210-1197 Resistance: 1236-1255-1273 US OIL - The U.S. Oil dropped to the key support level of 44.30 and then bounced back up and closed week above the 45.95 daily support level. As long as the price remains stable above 45.95, we think the downward trend may be limited and we will face resistance levels at 446.60 and 47.15. On the other hand, if the pair falls below 45.95 again, the next support level will be at 45.25. Support: 45.95 – 45.25 – 44.30 Resistance: 46.60 – 47.15 – 48.15
06 Jul 18 (Fri)
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