STOCKS RALLY AS FEAR OF TRADE WAR RECEDES
Global stocks bounced today after the trade war fears eased. Yesterday, Chinese authorities released a targeted list of American goods worth about $50 billion that they will place tariffs on. The list includes sensitive items like planes, soybeans and other agricultural products. These items were intended to create pressure on the US government to abandon the issue on tariffs and go to the negotiating table. The pressure worked and by midday yesterday, Larry Kudlow, the new Economic Advisor hinted about the need for talks.
Markit today released the data on Services PMI which disappointed the markets. The data, which shows the activity of purchasing managers in the service industry showed that the PMI declined to 51.7. Traders were expecting it to grow to 53.9, which was still lower than last month’s 54.9. The disappointment came a day after investors cheered a surge in the manufacturing sentiment. The data showed that the PMI rose to 55.1 compared to the investors’ expectations of 54.8.
In the United States, data from the Department of Labor showed that the initial jobless claims rose to 242K. This was a higher margin than what was expected. In the previously-released data, the initial jobless claims dropped to 218K. However, the continuing jobless claims reduced to 1.808K which was better than what was expected. At the same time, data on trade showed that the country was still exporting less than what it was importing. The trade balance grew to $57 billion, up from last month’s $56 billion.
The EUR/USD pair fell, caused primarily by the dollar strength after indications showed willingness by the United States and China to hold talks over trade. The pair reached a low of 1.2234, a level it reached lastly on March 1. The dollar strength could continue until tomorrow when the US will release the official employment numbers. A continued downward move could see the pair reach the important level of 1.2100.
The cable fell to 1.4000, which is the lowest level since March 21. The fall came after the tensions on trade eased while the data on the services industry showed some weaknesses. The service industry forms the largest part of the UK economy. In the past one month, the pair has been rising, fueled by the Brexit deal that was signed by the UK and the EU. It was also fueled by the overall weakness of the dollar. The pair reached a high of 1.4245 at the end of March. A continued pound weakness could see the pair touch the important Fibonacci level of 1.3911.
Germany’s DAX soared to the highest level since March 21. It reached an intraday high of €12,260 following a positive close on United States’ stocks and the indication that the US and China were nearing talks on trade. The gains today were led by Lufthansa and Commerzbank which were high at 3.50% and 3.31% respectively. As shown below, the index has an RSI of more than 70 and the MACD is in the highest level in months. This is an indication that in the short term, traders might move to take profits.