3rd June 2019
Stock markets around the world fell on Friday after Donald Trump slapped tariffs on all imports from Mexico in a bid to curb illegal immigration. The US president’s surprise move comes at an already troubled time for markets, as concerns mount over the escalating US-China trade war and slowing global growth.
Investors pulled money out of shares and into safe havens such as US government bonds, with returns hitting a new 20-month low, in a sign of falling confidence.
The yield on German government bonds fell further into negative territory, meaning investors effectively pay to own them. The return was equal to the record low of 2016.
European markets were already set for their first negative month this year before Mr Trump made his threat.
The FTSE 100 in London was 1pc lower, the Dax in Frankfurt fell 1.6pc and the Cac in Paris was 1.2pc lower. In a sign that investors now predict that Mr Trump will press ahead with threat to impose tariffs on cars made in the European Union, shares in car makers fell sharply. Oil prices – often an indicator on investor sentiment for global growth – plummeted to their lowest level in nearly three months with Brent crude under $65 a barrel.
On Wall Street the Dow Jones and S&P 500 indexes both fell as much as 1.3pc in morning trading. Levies on goods entering the US have been one of the Trump administration’s favoured diplomatic weapons, but this action was not expected to be taken against one of its biggest trading partners. The US is in the process of ratifying a refreshed tripartite trade with Canada and Mexico, known as USMCA. The tariffs will start at 5pc on June 10 and could rise to 25pc in the coming months if the Mexican government fails to stop illegal immigration into the US, Mr Trump tweeted.
China Demands Respect
China’s government says it’s willing to work with the U.S. to end an escalating trade war, but blames President Donald Trump’s administration for the collapse in talks and won’t be pressured into concessions. Beijing released a white paper on Sunday saying the escalating trade war have done serious harm to the U.S. economy by increasing production costs, causing prices hikes, damaging growth and people’s livelihoods and creating barriers to U.S. exports to China. The comments come as both sides escalate their dispute before Presidents Xi Jinping and Trump may meet this month at the Group of 20 summit in Japan.
Asian stocks started the week on the back foot after the feud between the world’s two-largest economies grew over the weekend. The yen held near a six-month high. U.S. futures retreated and contracts signaled modest declines for equities in Japan and Australia. The S&P 500 Index sank 1.4% on Friday and the yield on 10-year Treasuries slumped to 2.13% after a new front from the Trump administration started with Mexico. On traders’ radar this week, a raft of central bank meetings: the European Central Bank sets monetary policy and new forecasts, the Reserve Bank of Australia is widely expected to cut interest rates, and India’s central bank also has a rate decision. U.S. jobs report is out Friday. Federal Reserve officials gather in Chicago.
FTSE 100 Trading Signals, Forecast and Prediction
Friday’s weakness continued overnight and spread across to Asia, with the FTSE futures dropping down a bit since Fridays close. The next daily support of note is the 7110 level where we have S1 and also the key fib, with daily support just below that at 7106. That area therefore looks fairly key for some sort of bounce, but against the current back drop it may be fairly lacklustre.
The 2 hour chart has resistance to start with today at 7156 and slowly moving lower, so if we see a bit of an early rise to this area then a short here is worth a go. We are also nearing the bottom of the Raff channels, with both the 10 and 20 day ones around the 7080/90 area. we are hovering around Friday’s low of 7130 as I write this and this level was key for the bulls to defend on Friday. A move below this and making it stick will likely turn things fairly bearish for the start of June. Looks like this year may well deliver on the “sell in May and go away” mantra that many adopt. Below 7080 then we are probably looking at remaining bearish with a drop down towards 6900 again.
Should the bulls start a fight back, and there could well be a news item or Tweet that spurs them into action we may climb quite quickly. The fear gauge is at extreme fear still (buy when markets are fearful, sell when markets are greedy) and the daily RSI is currently at 34. A move above the 7155 area should open up a trip to 7200 and the resistance levels that appeared on Friday at the 7230/45 area. If this area were to be seen in the next few sessions then a short here is worth a go. Seems a big ask but above this but 7300 is still viable as resistance with that 7373 above this. Might need quite the effort from the bulls to get that high though!
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