30th May 2019
Stock markets across Europe fell on Wednesday as Chinese newspapers warned Beijing was ready to use its supply of rare earths in an increasingly bitter trade dispute with the United States.
The FTSE 100 in London dropped 1.5pc, or almost 110 points, to 7,160 points in afternoon trading, while the FTSE 250 lost 1.2pc to 18,890 points. Frankfurt’s Dax, typically sensitive to trade headlines, also fell 1.5pc while the Cac in Paris fared even worse with a 2pc drop. The Spanish and Italian markets both shed 1.4pc, while Wall Street also opened lower.
Stock markets are suffering their worst month since a quarter-long sell-off at the end of last year.
Donald Trump’s tit-for-tat war with Beijing over everything from microchips to soy beans has caused European markets to fall more than 5pc this month.
In a commentary headlined “United States, don’t underestimate China’s ability to strike back”, the official People’s Daily noted America’s “uncomfortable” dependence on rare earths from China. At the heart of the concern over trade is the threat that it will cut already slowing global growth, driving major western economies into recession and preventing China from filling the gap as it has done for much of the past two decades.
The latest signs of trade friction caused an inversion of a part of the US yield curve overnight – normally regarded as a warning of an impending recession.
Taking the biggest hit from the risk aversion were shares in Europe’s mining and car makers.
Rare earths are a group of 17 chemical elements used in everything from consumer electronics to military equipment and Chinese production account for 80pc of US imports of the substances.
European banking shares also suffered as Italy’s dispute over its budget with the European Union continued to hurt sentiment.
Latest data showed German unemployment rose unexpectedly in May for the first time in nearly two years, in a sign that a slowdown in Europe’s largest economy is spilling over to the labour market.
Mueller Case Closed
Robert Mueller declined to clear Donald Trump of obstruction of justice, saying in his first public remarks since ending the Russia investigation that a sitting president can’t be charged with a crime. The special counsel announced he was shutting his office and said he won’t give any testimony beyond what’s in his report. Neither side was content: Trump tweeted “the case is closed!” while some Democratic presidential candidates called on Congress to begin impeachment proceedings.
Risk Rises
Asian equity futures are mixed after U.S. stocks dropped to a 12-week lowas the trade war with China showed no signs of easing. Treasuries resumed a rally that sent the three-month/10-year yield curve to its deepest inversion since 2007. It’s all a sign of increasing market risk even if there is a deal reached between the U.S. and China, according to Morgan Stanley and Pimco. “Get ready for more potential growth disappointments even with a trade deal,” Morgan Stanley strategists wrote, adding that the S&P 500 could drop to 2,400. Pimco CIO Dan Ivascyn predicted lower returns from frothy corporate credit markets given gloomy fundamentals.
FTSE 100 Trading Signals, Forecast and Prediction
Was a bit unfortunate that the 7210 support area broke so easily yesterday but the 7160 lower support area held much better, and we have had a bit of a bounce from there. Should the 7150 level now break then we are looking at a drop down to 7090. Should the bulls break above the 7250 area on the other hand, then we should see a rise towards the 7300 and 7373 resistance area which is still showing on the daily chart.
With yesterday’s drop the 2 hour chart is showing resistance at the 7217 level and if we were to get an early rise to this area, building on the overnight strength, then a short here is worth a go. As mentioned, above this then we have a cluster of resistance levels at 7242 with a fib, R1, and the 200ema on the 30min. As such this level does look fairly key for today and the bulls will be keen to break this.
Of course, May continues to be news and sentiment driven, with the tit for tat trade talks still unsettling things as we go along. rare earth stuff yesterday from China. Bit annoying as it does mess with the technicals a bit but 7160 holding yesterday is a good sign for the bulls. The fear/greed indicator is at 23/100 so still set to extreme fear for the moment, but may encourage the bulls as long as 7160 holds.
I haven’t put it in the trade plan bu8t should we drop down to 7090 then a long here is worth a go. We have had a few sessions of over minus 100 on the FTSE this month, and a news headline could trigger the same again. The daily chart remains bearish as well for the moment, with the 7235 level for the 200ema to also act as resistance. To reverse the bearishness on that the bulls will need a few consecutive closes above the 7300 level.
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