Варчев Финанс: Trading day in one post – 03.07.2018

Asian stock market: Asian stocks traded mostly lower on Tuesday, with greater China markets extending their declines as investor worries over Beijing’s trade relations with the U.S. soured sentiment in the region. China markets pulled back, extending the last session’s sharp declines. The Shanghai composite sank 1.27 percent after touching two-year lows in the last session and the Shenzhen composite pulled back by 1.36 percent. Hong Kong’s Hang Seng Index plunged 3.08 percent as markets there reopened for trade after a holiday, with the energy and services sectors leading losses. Elsewhere, Japan’s Nikkei 225 turned lower, declining 0.65 percent after earlier retracing some of the sharp declines seen in the overnight session. In South Korea, the Kospi edged down by 0.37 percent. Manufacturers and technology plays were mixed, with Samsung Electronics gaining 0.99 percent while steelmaker Posco lost 2.06 percent. The S&P/ASX 200, however, bucked the broader trend to rise 0.51 percent.


FX market: BOJ will cut its inflation forecast this month. The Bank of Japan meet on July 30 and 31 and will update their Outlook for Economic Activity and Prices report. In the report the Bank includes its forecasts, and inflation, way below target, could come into focus again. This seems rather early, but the Nikkei says the BOJ will cut its inflation forecast further in the report. Bank of Japan looks to lower its price growth forecast for fiscal 2019 to the neighborhood of 1.5% in late July. Weak inflation in recent months undercutting the central bank’s contention that its 2% target is drawing closer.


Commodities market: Oil price fluctuations are expected at the start of the week due to the surprise agreement between the US and Saudi Arabia. On Saturday, Trump said King Salman has agreed to increase crude oil production to nearly 2 million barrels. In this way, the world’s largest oil consumer will compensate for the lack of supply from Iran and Venezuela. Saudi Arabia is the largest oil exporter in the world and the largest producer in OPEC (OPEC). A week ago, OPEC and its allies, including Russia, agreed to increase supplies. Iran has urged other OPEC members to “refrain from any unilateral action”. According to the US benchmark, the average oil on August West rose 70 cents, or about 1% to reach 74.15 dollars a barrel on the New York Mercantile Exchange. We expect weekly data on US crude oil commercial stocks on Tuesdays and Thursdays. From this data, we will estimate the strength of US demand and how quickly output levels will rise. Undoubtedly, the oil market needs stability and compensation for any potential shortage from oil producers.


European stock market: Donald Trump’s threat that he will impose tariffs on EU car imports may trigger Brussels’ response. Trump’s commercial policy has already caused tensions in steel and aluminum. On Sunday, Trump compared European countries with China in terms of trade with the United States. Twitter Trump has announced that European car manufacturers will be subject to criminal sanctions if barriers to US exports are not abolished. This is the reason for the first written statement of the European Commission. The document states that this move on the part of the United States, the imposition of car tariffs will not be accepted by the international community and will “further damage the reputation” of the United States. The document also states that a possible trade war between the EU and the United States will lead to broken political relations, to trade, growth and jobs in the United States. EU leaders warned last week that the EU would respond to all US tariffs on European production. The counter-actions on both sides do not serve the indices, with the main European benchmarks opening in negative territory. Commercial rhetoric will drive markets today.


U.S. stock market: Stocks right now are hanging by a thread, boosted by a bonanza of corporate buying unrivaled in market history and held back by a burst in investor selling that also has set a new record. Both sides are motivated by fear, as corporations find little else to do with their $2.1 trillion in cash than buy back their own shares or make deals, while individual investors head to the sidelines amid fears that a global trade war could thwart the substantial momentum the U.S. economy has seen this year. The numbers showing where each side put their cash in the second quarter are striking. Dow components Nike and Walgreens Boots Alliance led the most recent surge in buybacks, with $15 billion and $10 billion, respectively, last week. In all, 31 companies announced buybacks in excess of $1 billion during June. At the same time, investors dumped $23.7 billion in stock market-focused funds in June, also a new record. For the full quarter, the brutal June brought global net equity outflows to $20.2 billion, the worst performance since the third quarter of 2016, just before the presidential election. The selling is particularly acute in mutual funds, which saw $52.9 billion in outflows during the quarter and are typically more the purview of the retail side. So far, the market has managed to survive, with a 1.6 percent S&P 500 decline in the first quarter offset by a 3 percent gain in the second quarter, leaving the index up about 1.4 percent for the year.


Economic calendar for the European and U.S trading sessions:
11:30 UK – Construction PMI
12:00 Europe – Retail Sales
17:00 USA – Durable Goods Orders
19:00 Europe – ECB’s Praet Speaks
23:30 USA – API Weekly Crude Oil Stock

 Trader Aleksandar Kumanov

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