European stocks rebound, euro about to give it up

Equities
Forex
Indices
Morning Note

Stocks were lower across the board yesterday as the weight of the US-China trade dispute pushed everything down. From pretty much assuming the US and China would strike a deal, the market is repricing for a prolonged fight.

SPX closed lower by 19 points, or 0.69%, at 2,783, resting close on the 100-day moving average. This was a little off its lows of the day and a shade above the all-important 200-day moving average at 2776. The Dow shipped over 200 points and was briefly below 25k. 

The FTSE is also flirting with the 200-day line having closed 83 points lower at 7185. The pattern looks decidedly bearishy and flaggy right now. Support on the 38% retracement of the bottom-to-top rally from the 2018 low thru Apr high sits at 7150, which we saw tested and rejected yesterday. This was also an area of support that produced a bounce through the third week of May. 

We are seeing a small rebound in Europe on the open but there’s still lots of nervousness out there and the downward pressure is rather powerful and looks hard to resist. Any gains look hard won and easy to give up at the moment.

Forex

Dollar is still bid, pressuring everything else, with the dollar index on the 98 handle as it hoovers up haven demand. The euros is on the brink of capitulation on the 1.11 handle, with the pair last at 1.11343, ready to test those key May lows again, which marked a 2-year trough for the single currency. A breakdown through 1.11 on the downside brings 1.08 back into the picture.

GBPUSD doing very little still, trapped around the 1.2640 region. Whilst we are yet to retest Thursday’s low at 1.2610, we are making progressively lower highs and lower closes – the pound is still under a lot of pressure and this doesn’t look like having much chance of lifting until we know who the next PM will be. Brexit uncertainty remains.

That renewed dollar strength seems to be weighing on gold, which was last back at 1277. Rising trend support appears around the 1270 mark but for now the metal looks caught in a range. 

The GDP second print for Q1 is later – with the market already betting big on a rate cut this year it’s hard to see how a downward revision will really shift things. The first reading showed 3.2% and is expected to be revised down to 3.1%.

Watches of Switzerland

Meanwhile the latest IPO is in London – Watches of Switzerland has priced at the top of its range, at 270p. Shares will start trading today on the open. As we’ve seen this year IPOs can be a rough ride for shareholders and management. Hopefully for the management and buyers it won’t turn out to be another turkey like Aston Martin – one feels the omens are better for this one.

Market Commentary – More Brexit Deadlock

Forex
Morning Note

Brexit deadlock as Parliament plays the fool on April 1st

It reads like an April Fool’s story, but it’s unfortunately true; while a bunch of semi-naked climate change protesters demonstrated in the viewing gallery (allegedly even supergluing themselves to the windows), MPs voted against all four Brexit alternatives in another round of indicative votes. 

It’s now just ten days to go until the UK is set to leave the European Union with no deal in place. The EU has been doing its best to act nonchalant, but chief negotiator Michel Barnier stated that a long extension was possible, given enough justification. A sign of jitters from Europe, or simply another attempt to make sure the EU doesn’t get the blame for the UK’s misfortune? 

Not only are the odds of a no deal exit significant, but chances of a general election are also sizeable. Labour has already stated that it is on election footing, and it’s hard to see how the current government could negotiate anything after Brexit even if Theresa May’s Withdrawal Agreement miraculously scrapes a majority during a likely fourth vote. 

Cable has slipped on the latest results but has already cut losses in half since the morning session began, rejecting the $1.3020 handle and climbing back towards $1.3050. Such a small move suggests markets are still yet to price in the high chance of a no deal; traders are holding out hope that the UK will somehow blunder its way into a longer Article 50 extension. 

In this respect cable is somewhat akin to a cartoon character that has run off a cliff, yet continues to go straight until it eventually realises it has run out of ground. The gravity of the situation will hit at some point, leaving a big potential downside for GBP/USD unless the government can magic an almighty rabbit out of its incredibly empty hat. 

Fourth day of gains for FTSE 100 

The UK’s blue-chip index has risen for four consecutive sessions now, with oil companies pushing the index higher, helped by sterling weakness. Shell and BP are leading the index higher after yesterday’s Chinese manufacturing data pushed crude prices higher; unexpected growth in the Asian superpower has softened fears of a global slowdown. Shell is 0.6% higher, while BP has ticked up 0.5%. 

Other strong movers include HSBC (0.8%), spirits-maker Diageo (0.8%) and Unilever (0.9%). On the other end of the scale is Rolls-Royce, which has dropped 2% after premature blade deterioration was found on two Boeing 787-10 jets equipped with the company’s Trent 1000 TEN engines; Singapore Airlines has grounded the planes. 

Elsewhere global indices are softer after yesterday’s strong gains, with Asian stocks consolidating a seven-month high. European stocks are edging lower. 

Cryptocurrency rally sends bitcoin rocketing above $5,000 

The crypto market has raced higher this morning, with bitcoin on track for its biggest one-day gain in a year after breaching $5,000 – a level not seen since November 2018. The 25% gains were quickly trimmed, but BTC remains up 15% at around $4,765.00. 

Other major cryptos are enjoying strong gains as well; litecoin is 13% higher, bitcoin cash up 10%, ethereum 9% higher, and ripple up 8%. Crypto fans are celebrating the beginning of the long-prophesied bull market, but such jubilance is premature. Technical indicators suggest caution, with the RSI for BTC trending around 90 – anything above 70 is considered overbought. 

The rally added $17 billion to the value of the crypto market in under an hour, but traders are struggling to identify the cause of the uptrend. 

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