The tide market sentiment has once more seen positive risk appetite begin to ebb away once more today.
It seems that in recent days, market direction is being driven by newsflow not so much on COVID-19, but on rhetoric from both sides of the US/China trade story. The latest comes on suggestions that China wants to renegotiate Phase One of the trade agreement (apparently in reaction to the White House’s suggestions of retribution for China’s role in the pandemic). However, renegotiation to tip the balance towards China is not something that Trump would ever likely bow to, and as such markets are leaning risk negative today. Treasury yields are ticking lower, along with equities. There is also a slight dollar positive lean on forex majors, although notably, the support for the heavily weighted euro and yen means that Dollar Index is flat.
With Chinese inflation also coming in lower than expected for PPI (producers) and CPI (consumers) this alludes to weaker economic activity than forecast in China and again plays into a mild risk negative skew today. FOMC members Raphael Bostic and Charles Evans both speaking against the potential for negative interest rates yesterday is helping to bolster the near term dollar moves. Today’s focus on US inflation could though shift this narrative again, if levels come in lower than expected.
Wall Street closed mixed last night, with S&P 500 all but flat at 2930. With the E-mini S&P futures in decline this morning (by -0.7%) this is putting equities on the back foot. Asian markets dropped back slightly (Nikkei -0.1% whilst Shanghai Composite was -0.2%). European markets are also lower, with DAX futures -0.5% and FTSE futures -0.2%.
In forex, the broad slip in commodity currencies is leaving AUD as the main underperformer, whilst JPY is the main outperformer. USD is mixed to slightly positive.
In commodities, there are mixed moves for gold whilst silver is slightly lower, but oil continues its recent consolidation.
US inflation is big focus for the economic calendar today. US headline CPI is at 1330BST and is expected to show a -0.7% decline on the monthly data for April which would pull the year on year back to just +0.4% (down from +1.5% in March). The US core CPI is expected to decline by -0.2% on the month which would bring the yearly inflation back to +1.7% (from +2.1%).
There is a clutch of Fed speakers today, with Patrick Harker and Randall Quarles at 1500BST, whilst Loretta Mester at 2200BST.
After the six week uptrend was broken in early May, the bulls were under pressure. However, they have responded really well in recent sessions, to bolster the support band that has been forming at 67.25/67.62. The initial March rally formed resistance between 67.25/67.62, and since the April breakout, this old resistance has become a key basis of support. The slide of early May threatened this support once more, but the bulls have responded well. Now they need to take the next step forward and breakout to a new multi-week high above 70.15. Such is the accuracy of support and resistance levels on Aussie/Yen, once more, this level was hit to the pip before an intraday retreat in the past 24 hours.
The bulls will be looking to use renewed positive momentum to pull higher above 70.15 and open 71.50/72.40 as the next upside targets. The hourly chart shows how 69.00 has become a pivot in the past month and is broadly mid-range now and will be an important gauge for the near term outlook. A good bull reaction to early weakness today is bolstering 69.00 as a basis of support and the bulls are looking to re-assert again. A new positive bias is taking hold with positive hourly momentum and this implies pressure on 70.15.