Wall Street cheers G20 optimism ahead of Fed | CMC Markets Daily Commentary
Asian markets might take positive clues from a decent rally in US equities last night, backed by a dovish ECB statement and news that President Trump and Chairman Xi have confirmed, finally, to meet in the G20 summit later this month. Risk appetites that have been suppressed by factors such as trades, tariffs and geopolitical tensions have now turned positive. Although realistically the two leaders are not likely to strike a meaningful trade deal within two weeks, a re-opening in talks serve as a good reason for markets to extend the relief rebound.
Offshore Chinese yuan (CNH) registered its biggest intraday advance in two months and is traded at 6.899 to the US dollar this morning. USD/CNH serves as a good proximity to Greater China markets sentiment since early May. A rebound in yuan suggests capital outflow concerns are largely alleviated on hopes of a positive trade talk outlook. Other major Asian currencies, namely KRW, IDR, MYR and PHP have also advanced today.
The market’s focus now return to tonight’s Federal Open Market Committee (FOMC) meeting, in which the Fed is widely expected to keep interest rate unchanged and provide a future policy outlook. According to CME FedWatch tool, the futures market is seeing some 88% change in rate cuts (between 0.25 to 0.50 percent) in the July meeting. If the market’s prediction is correct, we might hear more dovish signals from Powell in the press conference tonight. In contrast, if the Fed disappoints with a neutral stance and triggers unwinding activities, it could lead to a further advance in the dollar and some retracement in equities.
The S&P 500 index advanced 0.97%, with industrials (+1.89%), information technology (+1.72%), energy (+1.35%) and financials (+1.31%) leading the rally, whereas defensive sectors such as consumer staples (-0.57%), real estate (-0.34%) and utilities (-0.31%) were among the laggers. Technically, the S&P 500 index is riding an uptrend, as suggested by its 10-day SMA and SuperTrend (10,3). Its immediate resistance level can be found at the previous high of 2,957 points.
Crude oil prices advanced on hope of an extension of output curbs by OPEC+ members in a meeting in early July. Technically, Brent oil price has formed a near-term bottom at US$60 and since rebounded. Tonight’s US DoE crude inventory data is also important to watch. A surprising run-up in the US commercial crude stockpile for the past five weeks have dampened crude oil prices. This week, the market is expecting some 900k barrels drop in the crude stockpile.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.