By Deepta Bolaky
Trade tensions are taking new dimensions with China’s major technology companies dominating headlines and weighing heavily on risk sentiment. As we progressed through the week, the markets turned risk-off over a number of escalating trade issues:
In light of this week’s events, reaching a trade deal is becoming more and more challenging deterring investors’ confidence.
Brexit related- news was also bearish, and a reminder that Brexit remains painful with no concrete solutions. The chances of the UK having a new Prime Minister is increasing and consequently lifting the odds of a harder Brexit. Britons were also forced to vote in the European elections as the UK is not out of the EU yet.
Theresa May has been resilient so far and clings to her position despite attempts to oust her. The British Pound came under pressure amid fears the May’s successor might leave the EU without a deal.
The GBPUSD pair dropped to 4-months low below the 1.26 level and is poised to further downside pressure if risks persist.
GBPUSD (Daily Chart)
Geopolitical tensions have rattled the equity markets which are poised to finish the week in the red. The markets turned risk-off towards the end of the week, and major equity indices experienced a significant sell-off on Thursday.
Chip stocks came swiftly under pressure after the U.S. blacklisted Huawei on Monday and attempted a recovery mid-week on the back of the licence. However, on Thursday, the stocks tumbled again due to mounting pressure from the trade headlines.
The U.S. 10-Year yield slides as risk appetite took a hit, and investor sought safety with bonds.
The minutes released this Tuesday followed by the Governor Lowe’s speech is paving the way to a June-cut.
RBA Minutes dated 7th of May: “… members considered the scenario where there was no further improvement in the labour market in the period ahead, recognising that in those circumstances a decrease in the cash rate would likely be appropriate.”
Governor Lowe’s speech: “ In this scenario, we judged that inflation was likely to remain low relative to the target and that a decrease in the cash rate would likely be appropriate. A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target. Given this assessment, at our meeting in two weeks’ time, we will consider the case for lower interest rates.”
The AUDUSD pair struggled to hold on to the gains on Monday’s opening gap following the election’s result. The Aussie dollar is currently at 68.92 US cents.
AUDUSD (Hourly Chart)
Source: GO MT4
Oil prices had its worst trading day for 2019 on Thursday. Weekly oil reports and trade tensions were both bearish factors that affected the demand and supply side. Traders are increasingly worried about the global outlook, which are overshadowing the oil market.
As of writing, WTI and Brent Crude is trading around $58 and $67 respectively.
UKOUSD and USOOSD (Daily Chart)
Source: GO MT4
|Monday, 27 May 2019
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