China and the United States agreed to return to the negotiating table during the G20 summit in Osaka. US President Donald Trump expressed his willingness to reduce the pressure on Huawei and postpone the introduction of new duties for at least six months. In turn, China agreed to resume purchases of American agricultural products.
The reason for mitigating the positions of both opposing sides lies in the awareness of the rapid growth of risks, which ultimately threaten to outweigh any intermediate victory in a trade dispute. World trade in semiconductors and electronics is declining rapidly. The speed of decline is comparable to the dotcom crisis and the 2008 mortgage crisis. In other words, if this process does not stop, then all sides will lose.
Both China and the United States note that their positions differ to a large extent and there is still no reason to experience euphoria but the markets still responded with growth since the readiness to seek a solution is regarded positively. Futures on the S&P 500 at the opening of the week updated the maximum and traded at 2977 p. Meanwhile, gold returned below 1400 and continues to fall as the sale of bonds accelerated.
Markets react with growth, therefore priority is given to risky assets in the face of risk reduction. However, first of all, the dollar is strengthening with this objective despite the fact that macroeconomic indicators published on Friday do not give a wire for euphoria. Consumption spending growth was 0.4% in May, which is worse than 0.6% a month earlier. Price indices also declined that indicates a growing threat of slowing inflation. The Chicago PMI index fell below 50 p. For the first time in 3 years, the University of Michigan consumer confidence index rose from 97.9 pp to 98.2 pp in June and only consumers are still quite happy.
Positive sentiment will still persist for some time, however, enthusiasm may decline today. The ISM index in the manufacturing sector will be published and forecasts are negative given the extremely weak regional reports. On Wednesday, ISM of the service sector will be released on but on Friday, a report on the labor market.
EUR/USD pair
Eurozone's Preliminary data on consumer inflation in June, published before the start of the summit, turned out to be at least as good as forecasts, which supports the euro and increases the chances of forming a growing trend. Nevertheless, the main reason for the growing demand for the euro is not internal but external factors instead. Markets are convinced that the Fed will begin the rate growth cycle at a meeting in July and after playing back the summit results, the dollar will weaken again against the euro.
The upward trend in the euro remains but there will be an attempt to form a local basis today. A decrease to 1.1270 / 80 is possible, after which growth will resume.
GBP/USD pair
The UK Office for National Statistics published a report on GDP for the first quarter and, more importantly, the dynamics of commercial investment. With regard to economic growth, the figures came out in accordance with expectations. The overall trend remains negative, which is not surprising against the background of an apparent slowdown in PMI.
As for investment, the report leaves a double impression. The growth recorded for the first time from 4 square meters. In 2017, the increase was only 0.4% but it should be treated with a certain degree of skepticism. The fact is that a new reporting standard, in which part of the operating expenses for rent began to relate to another item, came into force in January. This led to a reassessment of fixed assets and as a result, it made adjustments to the investment assessment. Accordingly, the growth may not reflect the real growth of investment but only a change in the balance sheet in this interpretation, which is not related to the real economy.
The situation with Brexit remains uncertain with the chances of a hard exit remain high. These factors deprive the pound of advantages against the background of a growing demand for risky assets. Therefore, its sideways movement in the range will most likely occur at the beginning of the week. The GBP/USD pair is trading near the support of 1.2660/65. An attempt is likely to go a little lower to 1.2640 at h the upper limit of the 1.2734 range is unlikely to be updated in the next 24 hours.
