Risk appetite continues to decrease, as on the last trading day of the month, futures in Europe traded lower, after a negative Asian session, in which most markets recorded a decline. There is increased vigilance among traders ahead of the key date – June 1 – for the US debt ceiling. The decline in Asia was also fueled by weak economic data from China, with the manufacturing sector continuing to shrink, dimming expectations of strong growth following the COVID lockdown. US futures also posted overnight declines, remaining under pressure, with the S&P currently trading below $4,200.
Limited risk appetite supports the dollar, with the DXY posting a solid overnight gain, trading again above 104, close to monthly highs. This puts pressure on other currencies, with the Euro and Pound falling.
The defensive positioning of the markets in Europe, as besides being the last day of the month, the economic calendar today offers some significant economic data, such as GDP and CPI from France /09:45/, Unemployment /10:55/ and CPI /15: 00h/ from Germany. Forecasts are for a slight improvement in GDP and CPI in France, while a slight rise in consumer inflation is expected in Germany and no change in unemployment rates.
Ahead of the start of the stock market session in Europe, futures reported a decline, remaining under pressure, as:
EuroStoxx 50 down 0.54%
Dax down 0.51%
FTSE down 0.56%
The leader in Europe – the German Dax failed to keep the levels above 16K, as a weekly trade in the wide monthly range / 16,000 – 15,800 / seems to be the most likely scenario, as we wrote at the beginning of the week. Worsening economic fundamentals /GDP decline for the third consecutive Q/ cooled the bullish attitudes. We had increased volume in yesterday’s session, but overall trading is cooling down. The failed attempt to hold above the previous high /16K/ will most likely send the quotes to the lower limit of the range, with possible even reaching lower levels around 15,750-15,700, in search of more serious support from the horizontal and 65MA .
The DeMarker Oscillator holds in neutral territory, while the OBV shows a serious decline in buy side trading volumes, reaching record lows for the past 2 months.
On the other hand, it is the last day of the month, and there can be a surprising turn in day trading, with positioning usually happening a few days earlier. Some support is not out of the question if the economic data turns out to be better than expected, but even in such a scenario, it will be difficult to see a serious rise in prices, as I expect the index to remain under pressure.
Risk off sentiment in markets remains as investors await the key decision on the US debt ceiling, which is essential for global markets.
Dealer Alexander Alexandrov