Market Report 13.05.2019
UK Prime Minister May set out the timeline for her departure but this is yet to offer any light to the Brexit uncertainty in the UK. It was reported that PM May would leave office after the first phase of Brexit, but the fight to replace her is expected to complicate Brexit talks further. This could eventually trigger a Conservative Party leadership contest, a national election or even a second Brexit referendum. In addition, the DUP, which props up PM May’s Conservative Party in parliament, has shown strong oppositions to her plans and the current talks also seem to have produced little positive outcome. Currently the governing Conservative party is polling 5th in the upcoming European Union elections. Meanwhile, cross party talks with the Labour Party are also expected to end up in failure, as there has been no big offer to the Labour Party yet according to Labour leader Jeremy Corbyn. Hence, with uncertainties still present, more headwinds lie ahead for the GBP.
The USD continued to edge lower against the JPY, as the Sino-US trade war escalates. Yen has been gaining interest of late as a currency safe heaven by not being directly involved in the trade war, unlike the USD. At present, with current volatility news mainly driven by headlines on Sino-US trade relation, investors seem to be shorting the USD. Overall, acrimony between US and China over trade issues appeared to be escalating and the USD has been facing some sell-off. Meanwhile, US inflation faltered last Friday, and remained muted hinting that the soft inflation may not be temporary and could warrant a rate reduction in the future. Tonight, eyes will be towards the speech of Fed Vice-Chairman Clarida. Should he hint at any possibility of the Fed cutting interest rates soon, it would spark further downside for the USD.
EU foreign policy chief Federica Mogherini said on Monday that the European Union fully supports the international nuclear accord with Iran and wants rival powers to avoid further escalation over the issue. Britain, France and Germany are signatories to the nuclear deal with Iran together with the United States, Russia and China. US Secretary of State Mike Pompeo is also expected to meet EU officials in Brussels on Monday to talk about Iran. Iran is also on the agenda tomorrow with Pompeo flying to Sochi where he plans to meet Russia’s President Vladimir Putin and Foreign Minister Sergei Lavrov. EU powers rejected “ultimatums” from Tehran, after it said it will relax restrictions on its nuclear programme and threatened moves that might breach the 2015 international pact.
U.S. stock futures and Asian shares fell today as anxiety is growing over whether the United States and China will be able to salvage a trade deal, after Washington sharply hiked tariffs and Beijing vowed to retaliate. E-Mini futures for the S&P 500 fell 1%. MSCI’s dropped 0.5%, nearing its two-month low marked on Thursday and Chinese shares tumbled. Hong Kong’s financial markets are closed for a holiday. Nikkei sunk 1% to hit its lowest level since end of March. The offshore Chinese yuan fell to its lowest levels in more than four months at 6.88 to the dollar. The other major currencies were relatively calm with yen still supported but not aggressively. The dollar was holding at 109.75 yen, down 0.2% on the day and just above a 14-week trough of 109.46. The euro was steady at $1.1233. In commodity markets, oil prices remained a relatively tight range, with the U.S. crude futures were last down 0.1% at $61.62 a barrel, while Brent crude futures gained 0.3% at $70.81. Spot gold eased 0.1% to $1,283.61 per ounce.