US Open Preview – Investors look for safe havens ahead of G7 summit

XM Market Review
XM Market Review

Here are the latest developments in global markets:

  • FOREX: Despite optimism that the ECB will end its QE program by the end of this year, the euro went downhill on Friday against its US counterpart as appetite for riskier assets eased on fears trade tensions could heighten if the US and its G6 partners fail to reach agreement on a joint statement at today’s meeting in Quebec, Canada. The pair also lost ground after German trade numbers indicated a narrower trade surplus in the biggest EU economy, with euro/dollar crawling down to 1.1763 after hitting a two-week high of 1.1839 yesterday. Pound/dollar was slightly weaker today at 1.3414 (-0.05%) with Brexit uncertainties adding to trade pressures. Yesterday, rumors said that UK Brexit Secretary, David Davis, was up to resign if he did not get a guarantee by the UK Prime Minister, Theresa May, that the backstop proposal – a hard border with Northern Ireland – would not extend beyond December 2021. While today’s headlines stated that Davis would stay in the role, the threat exposed once again divisions over Brexit in May’s cabinet ahead of a withdrawal bill vote in the UK’s lower house on June 12. Euro/pound slipped to 0.8758 (-0.34%). Dollar/yen remained in the red, extending losses for the second day towards 109.31(-0.36%) as the yen was gaining ground in the face of risk-off sentiment. The safe-haven Swiss franc, though, was unable to advance on risk aversion as a key banking vote in Switzerland on Sunday (on whether the SNB central bank would be the only issuer of Swiss francs) could alter the country’s monetary system. Dollar/swiss franc was up at 0.9830 (+0.27%). The dollar index benefitted from euro and pound weakness, climbing to 93.69 (+0.32%). Aussie pairs, which are vulnerable to US-China trade relations, were among the worst performers despite upbeat Chinese trade figures early today, with aussie/dollar retreating to 0.7569 (-0.72%) and aussie/yen tumbling to 82.73 (-1.06%). Kiwi/dollar stood lower at 0.7016 (-0.13%). Dollar/loonie changed hands at 1.3015, higher by 0.32% before the release of the Canadian employment report later today.
  • STOCKS: Investors were in a cautious mood in European stock markets, driving equities lower ahead of the widely expected G7 meeting later in the day. The pan-European STOXX 600 and the blue-chip Euro STOXX 50 were down by 0.16% and 0.06% respectively at 1130 GMT despite speculation of tighter monetary conditions, with all sectors being in the red. The German DAX 30 dropped by 0.62%, with industrials leading the losses, the French CAC 40 declined by 0.13%, UK’s FTSE 100 moved down by 0.16% and the Spanish IBEX 35 declined by 0.94%. The Italian FTSE MIB was the worst performer, losing 1.54%. Futures tracking US stock indices were all in the red, pointing to a negative open.
  • COMMODITIES: Oil prices were falling on Friday after finishing the day higher on Thursday as data showed on Friday that crude oil imports out of China in May, the world’s second largest oil consumer, pulled back from record highs reached last month. Investors were also pricing in that OPEC could announce an output hike at its two-day policy meeting on June 22-23 amid rising US production. WTI crude and Brent were trading lower at $65.72/barrel (-0.35%) and $77.00/barrel (-0.41%) respectively. In precious metals, the risk-off sentiment attributed mainly to escalating trade disputes between the US and the rest of the world shifted some demand towards safe-havens, helping gold to pick up to $1,299.12/ounce (+0.20%).

Day Ahead: Trade developments take the front seat; Canadian jobs figures on the agenda

With the only major release on the economic agenda being Canada’s employment report on Friday, investors’ focus would turn also on comments or statements coming from the G7 gathering.

The G7 summit in Quebec, Canada will take place today and will conclude tomorrow. Investors have started to price in the uncertainty surrounding the summit, as the US has already decided to levy tariffs on steel and aluminium imports from countries that were previously exempt. Germany and France have stated that they will not sign any agreement before progress is made on the Paris Climate Accord, the Iranian deal, and tariffs. Meanwhile, US President Donald Trump has decided to leave the two-day summit earlier than anticipated right after Saturday’s morning session on June 9, to head to Singapore where he will hold a meeting with the North Korean leader Kim Jong-un three days after. Before the summit kicks off though, the US President already engaged in a war of words, expressing his willingness to clean up any “unfair trade deals” at the meeting.

Out of Canada, housing starts for the month of May will become public at 1215 GMT, but the main release of the day is the employment report scheduled at 1330 GMT. The unemployment rate is forecast to have held steady at its four-decade low of 5.8% for the fourth consecutive month, while the net change in employment is anticipated to have rebounded, following a sharp decline previously. The net change in employment is expected to show that the economy added 17.5k jobs during the month of May after losing 1.1k in April. Upside surprises would likely be encouraging news for the Bank of Canada,which is looking to hike rates in July.

The day continues with the US wholesale sales for the month of April at 1400 GMT, while in energy markets, investors will keep a close eye on the US oil rigs count issued by the Baker Hughes company at 1700 GMT.

Overnight, China will announce CPI and PPI data for May. Predictions are for the CPI figure to remain on hold to 1.8% y/y, while the PPI rate is forecasted to have ticked up to 3.8% y/y versus 3.4% in the preceding month.

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