Trader's view

The calendar looks light in terms of economic data, but the overhang of several geopolitical and economic issues should continue to drive volatility in markets this week.

Market data
Source: Bloomberg

Trade war fears are still simmering away in the background, despite a dulled response to US President Trump’s threats towards European auto imports over the weekend, with markets seemingly more interested in the relative success of Friday’s OPEC meeting. The USD has even pulled back, perhaps due to a sense of modest relief (just in the short term), setting the foundations for a week that may well end just as easily with a bang than a whimper.

Local traders will be watching on with interest to see whether the ASX 200 can continue its mercurial rise and extend its run to new decade long highs. The bull case for a further push higher may point to the extended gains in bank stocks – the main driver for the run higher across Australian shares last week – and the fact that there still appears room for a further recovery in the share price of the Big 4 banks. The bear case however, must be that geopolitical risks to the Australian economy are too fundamentally high to justify a prolonged rally, and that a pullback is therefore in order. From a technical perspective, look to support at the ASX’s previous resistance level at 6,160 to assess the potential longevity of the index’s run higher.

Another ingredient was added to the stewing trade war on the weekend after US President Donald Trump announced his administration is canvassing a 20% tariff on EU car imports. Citing national security grounds again, US President Trump implored in a Tweet relating to the announcement that when it comes to automobiles, the US should “build them here”. So far, markets have shrugged off the news, despite the tumble stocks took following last week’s Daimler profit downgrade on Friday, seemingly opting to take the “Art of the Deal” argument that President Trump’s announcement is a blustery negotiating tactic. Several of the tariffs passed by the White House against its economic neighbours come into effect this week, so keep an eye on whether this attitude continues to hold.

The US Dollar fell amidst the consistent news flow over the weekend, retreating from its challenge to the US Dollar Index’s (DXY) near-12-month highs to presently trade (at time of writing) around 94.20. The fall in the greenback can be attributed largely to the currency’s tumble against its European counterpart, given the pairs strong weighting in the DXY’s composition. While an argument could be made that the USD took a tumble, due to potential dire economic growth consequences of US President Trump’s bombastic trade policies. At this stage, a safer line would be that the Dollar’s fall reflects a slight pull back in the greenback in what remains an upward trend.

Perhaps the reason the markets were so blasé towards bad news at the end of last week was the boost in confidence following the outcome of OPEC’s meeting in Vienna on Friday. In what is currently being treated as a bit of a goldilocks result, OPEC+ agreed to a Saudi and Russian led proposal of boosting oil production to avoid a continuation of the recent tear higher in prices. The result affirms for traders the legitimacy of the organisation, which also announced it would be working towards formalising its governance structure. The news sparked a small recovery in the price of Brent Crude, which pushed back above the $75.00 handle, the result of which drove RIO and BHP shares 2.2% and 1.4% higher respectively.

Despite the good news feel to the end of last week’s trading, the increased risk sentiment couldn’t arrest the sustained fall in the value of bitcoin, which came close to testing a support level that the cryptocurrency has not traded at since the beginning of November last year. The tightening of global monetary policy conditions seems to be testing the resolve of bitcoin traders, as a search for some sense of fundamental value for the virtual currency remains elusive. As it currently stands, the trend seems to be conclusively bearish for bitcoin, which appears increasingly vulnerable to the growing reluctance from traders to wade into speculative assets amidst burgeoning market risks.

The calendar looks light today and for the rest of this week to end June, with only a handful of events really jumping out as key economic events. US GDP and Chinese PMI due later this week will take on a dynamic colour, as growth risks loom from inflaming trade tensions between the world’s two major economies. The Fed’s chosen inflation gauge also prints this week and will be looked upon to see if the US economy is still at 2% target inflation. A handful of companies will report earnings out of the US, which could add to or subtract from US share-market strength. Finally, today’s open for Australian stocks is looking positive, with SPI Futures currently indicating a 13-point gain to the ASX 200.

Denna information har sammanställts av IG, ett handelsnamn för IG Markets Limited. Utöver friskrivningen nedan innehåller materialet på denna sida inte ett fastställande av våra handelspriser, eller ett erbjudande om en transaktion i ett finansiellt instrument. IG accepterar inget ansvar för eventuella åtgärder som görs eller inte görs baserat på detta material eller för de följder detta kan få. Inga garantier ges för riktigheten eller fullständigheten av denna information. Någon person som agerar på informationen gör det således på egen risk. Materialet tar inte hänsyn till specifika placeringsmål, ekonomiska situationer och behov av någon specifik person som får ta del av detta. Det har inte upprättats i enlighet med rättsliga krav som ställs för att främja oberoende investeringsanalyser utan skall betraktas som marknadsföringsmaterial. 

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