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Equities Decline on Earnings & Geo-Political Cues, Macro Data & Earnings Updates in Focus

msftEuropean equities decline on disappointing SAP earnings data led dovish influence. US earnings reports from Microsoft and Morgan Stanley in focus.

Summary: As Sino-U.S. trade war continues to progress with each passing day, caution continues to increase and market scenario is turning out to resemble how it was before G20 summit. With no deal between two parties in sight, it is likely that fight between two nations is likely to drag global economy into decline causing investors to avoid risk assets. Meanwhile, earnings influenced cues and profit warnings are also causing market bulls to suffer. Asian indices and futures saw sharp declines today and European market took cues from Asian market and opened dovish for the day. Further, poor earnings report of software firm SAP caused it stocks to take on dovish action in European market dragging major indices in European market into steep decline today. In forex market, albeit mixed activity, bulls have managed to retain upper hand of most major currency pairs.

Precious Metals: Precious metals continue to trade positive in the global market on dovish equity performance and risk averse investor sentiment. However, gold declined from 2-week highs hit recently as profit booking activity today caused price to go down. Demand from emerging markets and weak USD underpin gold bulls keeping declines in check.

Crude Oil: Crude oil is continuing to trade positive in the global market influenced by US stockpile data. Following API weekly crude oil data, EIA weekly stockpile data which was released yesterday also saw sharp draw in inventory for fifth consecutive week. Further, cues from Middle Eastern tensions, OPEC extended supply cut also underpin positive price action.

AUD/USD: The pair regained positive momentum today and is back above 0.70 handle. The positive momentum was influenced by weak USD which declined on account of drop in US bond yields and fed rate cut bets. But gains were capped owing to risk aversion stemming from investor caution on prolonged Sino-U.S. trade war.

msOn The Lookout: Geo-political woes continue to hamper positive activity in the global market as lack of solid progress hurts investor sentiment. But cues from geo-political events continue to remain in back seat as cues from profit warnings and earnings update reports act as major driving force behind market price momentum. Both US and EU government bond yields saw dovish decline today on expectations surrounding dovish outcome in upcoming policy meeting. On the release front today, UK economic calendar saw better than expected outcome in retail sales data fuelled by consumer sentiment and demand to stock up ahead of hard Brexit scenario later this year. In North American market hours, economic calendar will see release of US Philadelphia fed manufacturing index, speech from FOMC members Bostic & Williams and Canadian ADP Non Farm Employment change data.

Trading Perspective: Weak USD is likely to influence positive price action in forex market and cues from macro calendar outcome are unlikely to cause any major deviation in price action of high risk and popular currency pairs. US Wall Street is likely to see highly volatile and active intra-day trading activity on account of release of earnings reports from Microsoft, Morgan Stanley and Honeywell. So far US stock and index futures trading in international market saw dovish activity on account of disappointing Netflix earnings reports released yesterday which combined with dovish cues from Asian and European markets hint at subdued opening in Wall Street today.

EUR/USD: The pair is trading with dovish bias in the global market today. While weak USD on account of declining T.Yields cap declines, reports of ECB reconsidering inflation target caused EU government bond yields to decline weighing down EURO resulting in dovish price action. Traders await US macro data for short term price action and increase in dovish influence is likely to push pair as low as 1.1180/70 later today.

GBP/USD: The pair is trading positive in the global market on fresh positive cues. Weak USD on account of fed rate cut bets and declining US T.Yields helped GBP gain upper hand which was further supported by better than expected UK retail sales data. This caused the pair to scale intra-day high of 1.2495 well near monthly highs hit at start of the month. While the pair has eased from intra-day high, it is still trading above 1.2470 and is likely to remain above mid-1.24 handle during American market hours. Traders now await US macro data for short term price action.

USD/CAD: The pair opened positive today but is seeing subdued price action owing to weak US and dovish US.T.Yields. CAD bulls are supported by positive crude oil price in major global benchmarks and declining US weekly stockpile data. But tensions surrounding Sino-U.S. trade war caps CAD’s gains. Traders now await Canadian ADP Non Farm Employment change data and Philadelphia fed manufacturing index data for short term trading cues.

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