Wednesday 24th May: European Open Briefing

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Wednesday 24th May: European Open Briefing 1

Global Markets:

  • Asian stock markets: Nikkei up 0.55 %, Shanghai Composite fell 0.40 %, Hang Seng declined 0.15 %, ASX 200 gained 0.05 %
  • Commodities: Gold at $1251 (-0.30 %), Silver at $16.98 (-0.90 %), WTI Oil at $51.60 (+0.20 %), Brent Oil at $54.25 (+0.20 %)
  • Rates: US 10-year yield at 2.28, UK 10-year yield at 1.08, German 10-year yield at 0.41

News & Data

  • Japan Reuters Tankan Index May: 24 (prev 26)
  • Australian Construction Work Done (QoQ) Q1: -0.7% (exp -0.5%; prev -0.2%)
  • New Zealand Trade Balance (MoM) (NZD) Apr: 578M (prev 332M)
  • New Zealand Trade Balance (YoY) (NZD) Apr: -3.481B (prev -3.67B)
  • New Zealand Exports (NZD) Apr: 4.75B (prev 4.65B)
  • New Zealand Imports (NZD) Apr: 4.17B (prev 4.31B)
  • Fed’s Harker: Repeats Support for Shedding Bonds This Year and Two More Rate Hikes This Year
  • Fed’s Harker: Labour Market Has Very Little Slack Left
  • Fed's Harker: Fed Will Adjust Pace of Rate Hikes If Needed
  • Fed's Harker: June Rate Hike 'A Distinct Possibility'

Markets Update:

Markets were surprised by a downgrade of China’s credit rating by Moody’s. The rating agency lowered China’s rating from A1 to AA3 and the outlook from “stable” to “negative”. This put stocks in Asia under pressure, especially in Shanghai and Hong Kong.

The announcement had also an effect on the FX market. The Australian Dollar declined, as Australia’s economy is quite sensitive to developments in China. AUD/USD fell from 0.7480 to a low of 0.7480. The breakout in the pair now looks like a false one, and losses could extend to 0.7380, where the next notable support level lies.

This put also some pressure on the New Zealand Dollar, which fell despite better than expected trade data, which showed a solid increase in exports. NZD/USD declined from 0.7040 to 0.70.

The Euro retraced some of the recent gains, amid broad USD strength in the market. A break below 1.1170 support would indicate that EUR/USD could fall back to 1.11 soon.

This evening, the Federal Reserve will publish its latest meeting minutes. The central bank is likely to signal a rate hike in June. Given that the market is already expecting that, the release will likely be a non-event.

Upcoming Events:

  • 13:45 BST – ECB President Draghi speaks
  • 15:00 BST – US Existing Home Sales
  • 15:00 BST – Bank of Canada Rate Decision
  • 15:30 BST – US Crude Oil Inventories
  • 19:00 BST – FOMC Meeting Minutes

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