News & Analysis

Week Ahead – Retaliation from China?

May 13, 2019

By Deepta Bolaky

This week , the focus will remain on the trade tensions between China and the US. Monday morning has kicked off with President Trump’s tweets on how China is “ripping off America”. Investors will likely be caught off in the tug-of-war between the world two largest economies and will remain defensive as they await retaliation from China.

Week Ahead – Retaliation from China?

Stock Markets

After a stellar 2019, global stocks experienced its worst week dragged by heightened trade tensions. President Trump’s tweets depicted the strong stance adopted by the US administration towards China. Despite Friday’s recovery on the back of positive comments from the US President, the week is gearing up to be another difficult one for the equities markets as investors await some sort of retaliatory measures from China following the additional tariffs on Chinese goods. 

While the trade tensions are overshadowing the financial markets, it may be worth considering if:

“It is the time to look at buying at lower levels or identifying at what levels it will be worth buying should the pullback persists amid trade jitters.”

Forex Markets

It will be a relatively busy week on the economic calendar. However, attention will most likely be on the safe-haven currencies like the Japanese Yen and the US dollar. Last week, traders sought safety with the Yen in times of stress.

The Aussie Dollar is still biased to the downside as economic metrics are looking weak. Among the following data releases across the week, the labour and wage reports will stand out given that analysts are waiting for new figures to gauge the RBA’s views about future interest rate cuts.   

  • Monday: Home Loans and Investment Lending for Homes
  • Wednesday: Westpac Consumer Confidence
  • Thursday: Employment Change and Unemployment Rate
  • Friday: Consumer Inflation Expectations
  • Saturday: Federal Election 

AUDJPY will be an interesting pair to monitor in the light of trade tensions combined with the fundamental downside pressure on the Aussie dollar.

The British Pound remains driven by Brexit deadlines. The local currency emerged as the worst performing currency against the G10 last week. Prime Minister, Theresa May is under intense pressure to drop formal talks with Labour and secure a compromise in Parliament.

However, Average Earnings and Unemployment data to be released on Tuesday may support the upside momentum of the Sterling pairs.

Source: Bloomberg Terminal

The Euro strengthened against major rival currencies to the exception of the Yen and Swiss franc last week. We expect the EURUSD to keep its recovery and challenge the next immediate resistance level at 1.12537.

  • Monday: Consumer Prices, ZEW Economic Sentiment and Current Situation (Germany) and Industrial Production and ZEW Economic Sentiment (Eurozone)
  • Wednesday: Gross Domestic Product (Eurozone and Germany)
  • Thursday: Eurogroup Meeting and German Buba President Weidmann Speech
  • Friday: Consumer Price Index (Eurozone)

GDP figures on Wednesday are expected to show a slight improvement and could further support the shared currency.

Commodities Markets

Amid geopolitical risks, oil prices are dampened by the tensions between the US and Iran and trade frictions. It is reported that the US has approved the deployment of a Patriot missile defence battery and another warship to the Middle East. Oil reports have supported the oil markets, and we expect traders to keep monitoring weekly reports for further support.

The price of Gold largely echoed the markets’ sentiment and the movement of the US dollar. On the H4 chart, prices are capped by an uptrend line. XAUUSD pair may find further haven flows this week.

XAUUSD (H4 Chart)

Source: GO MT4

Cryptocurrencies Markets

The big move in Bitcoin prices over the weekend did not go unnoticed. In the last 10 hours, Bitcoin rose by 11% setting a new high for 2019. As of writing, we see a small correction in BTCUSD.

Given that the future of crypto remains uncertain amid the heat coming from regulators, we note that Binance, a crypto exchange also reported a loss of 7,000 bitcoin worth of $40 million in a hack last week which adds to the numbers of hacks in relation to cryptocurrencies. Yet, Bitcoin climbed above $7,000 over the weekend.

Source: Bloomberg Terminal

Tuesday, 14 May 2019
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
8.53 0 0.321 0.334 0.3116 2.329 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 0 0 0