Global stock markets sell off as USA-China trade talks near, oil slumps on inventory rise.

Jan 29 • Morning Roll Call • 336 Views • Comments Off on Global stock markets sell off as USA-China trade talks near, oil slumps on inventory rise.

Bearish trading in Europe set the tone for Western Hemisphere equities trading on Monday, the main markets in the: U.K., France and Germany all closed sharply down. The U.K. FTSE 100 ended the day down 0.91%, with the DAX ending the trading day down 0.63%. General concerns still linger for European market investors, dampening overall sentiment.

Disappointing PMI data relating to the Eurozone was printed last week, which missed the forecasts by some distance, whilst revealing that (in certain sectors) Germany is only one further missed forecast away from entering recession. The weak Markit PMI readings were also underscored by the ECB downgrading its growth forecasts. As the powerhouse of European growth, the ripple effect that possible sector recessions in Germany could cause, should not be underestimated, in terms of the impact on overall global market sentiment.

With Brexit votes on various amendments, scheduled to take place in U.K. Parliament on Tuesday evening, on Monday sterling struggled to maintain the momentum, which caused GBP/USD to rise by approx. 2.5% last week. The major pair was trading close to the daily pivot point at 1.316, down by 0.37% in late evening trade on Monday. The currency pair, often referred to as “cable”, has risen by 3.64% monthly, but is trading down -6.47% yearly. EUR/GBP rose by 0.53% on the day, breaching R1 during the morning of the London-European trading session, closing out the day’s trading sessions at 0.868. Despite the recent optimism regarding a no deal Brexit being potentially averted, EUR/GBP has limited its losses to -1.53% weekly.

A cohort of U.K. based businesses began to lobby the U.K. govt. on Monday, to ask the E.U. to suspend the article 50 withdrawal enactment. Meanwhile, supermarket chain bosses in the U.K. actually warned that a no deal exit, would cause their supermarket shelves to be empty of fresh produce and cause the prices of staple goods to rise in price dramatically.

USA markets continued the overall bearish market sentiment set by Europe earlier in the day, with two major corporations in the country filing disappointing revenue figures, illustrating the damage the Trump tariffs have (partly) caused. The heavy plant, machinery manufacturer Caterpillar, often regarded as a thermometer; to measure the health and temperature of global business confidence and activity, witnessed its share price slump by close on 8%, due to its quarterly profit missing Wall Street estimates by some distance.

The company blamed the fall in profits on: softening Chinese demand, a strong dollar, higher manufacturing and freight costs, mainly as USD gained versus certain Asian currencies throughout 2018, particularly the yuan, as Trump’s tariff policy backfired, by making U.S. exports more expensive for domestic manufacturers.

The American, computer gaming chipmaker Nvidia, also slumped in price after it published its latest performance figures, falling by over 12% during the day, after the chipmaker slashed its fourth-quarter revenue estimates, by approximately half a billion dollars. The firm was hit hard by weak demand for its gaming chips in China and lower than forecast data centre sales.

The Dow Jones Industrial Average had registered a fall of circa 300 points, or 1.23% by mid afternoon U.S. time, as optimism faded that the USA-China talks will result in a positive outcome. However, as trading neared the close, the index regained some lost ground and by 20:15pm U.K. time the index had capped the losses, to be down 250 points, or 1%. The SPX lost 25 points, or 0.89%, whilst the Nasdaq Composite slumped by 1.35%, slipping below the critical 7,000 handle, to trade at 6,670. EUR/USD rose 0.13% percent to 1.142, whilst USD/JPY rose by 0.14% at 109.35.

U.S. energy firms reported last week of an increase in the number of rigs drilling for oil, for the first time since late December 2018. U.S. crude oil production, which rose to a record 11.9 million barrels per day in the final weeks of 2018, has negatively impacted sentiment in the oil market. During Monday’s trading sessions WTI crude closed the day out down approx. 3% at $42.14 per barrel, with the price of Brent struggling to maintain the $60 a barrel handle.

There are several high impact news releases, relating to the U.S. economy, which FX traders should remain vigilant of, during Tuesday’s trading sessions. The advanced trade goods balance will be published, as is the latest consumer confidence reading from the Conference Board. The confidence reading is forecast to fall to 124.6 for January, from 128.1. Various S&P Case Schiller house price metrics will also be printed, analysts will scrutinise the data for signs that higher borrowing costs are impacting on home buyer sentiment. The 20 city composite reading is expected to fall to a 4.9% annual increase up to November, from 5.04% previously.

In fundamental news events not listed on the economic calendar, the United States and China will begin talks on Wednesday January 30th, in an attempt to resolve their differences, with regards to the tit for tat, tariff policy, both countries have engaged in since 2018. FX traders will also have to price in the value of the U.S. dollar in relation to the pending GDP growth data, which will be published on Wednesday. The Reuters news agency is forecasting a fall to 2.6% annualised growth, from the previous 3.4% level. This reading will be released on the day the FOMC announce their latest rate setting policy, after a two day symposium. The expectation is the Fed chairs will announce no change to the key interest rate of 2.5%, whilst delivering a more dovish policy outlook and stance, based on weakening global demand.

ECONOMIC CALENDAR EVENTS FOR JANUARY 29th

AUD National Australia Bank’s Business Conditions (Dec)
AUD National Australia Bank’s Business Confidence (Dec)
CHF Trade Balance (Nov)
CHF Exports (MoM) (Dec)
CHF Imports (MoM) (Nov)
USD Redbook index (MoM) (Jan 25)
USD Redbook index (YoY) (Jan 25)
USD S&P/Case-Shiller Home Price Indices (YoY) (Nov)
USD Consumer Confidence (Jan)
USD 52-Week Bill auction
USD 7-Year Note Auction
GBP UK Parliamentary vote on Brexit Plan B
USD API Weekly Crude Oil Stock (Jan 25)

 

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