The S&P 500 closed at the highest level since Feb. 1 for the second time this week and extended gains overnight, this is surely a breakout isn’t it? Not so fast, we will discuss this in the technical section below. Global equity markets are all higher and being led by the Nikkei, which is up almost 2%, about half of which came during yesterday’s U.S. hours (Nikkei futures are up about 1%). This strong 48-hour move comes as the Japanese yen has completely broken down through long-term technical support.
The biggest themes in the markets this week can be summarized as: U.S. dollar strength; weakness in foreign currencies – particularly where the central bank is still dovish such as the Japanese yen and Swiss franc; and positive sentiment in the markets.
Investors were placed on an emotional rollercoaster ride this week as trade tensions between the United States and China intensified. The Trump Administration’s latest threats to impose tariffs on an additional $200 billion of Chinese goods initially dealt a blow to global sentiment, rekindled jitters and sparked risk aversion.
Expect more crude oil price volatility as the global oil market can flip from a global supply surplus to a global supply deficit at the drop of a hat. The market is trying to assess whether more sources of oil will get us to the point where daily global oil production is once again ahead of our daily consumption. So far it has not.
Global equity markets are back in the green this morning and cueing off a softer trade rhetoric from China. The market is focused on China’s response to the White House’s third wave of tariffs worth $200 billion and ultimately, as we pointed out here yesterday, China only imported $130 billion of U.S. goods in 2017.
It’s been a more positive start to trade on Thursday, with equity markets in the green and paring Wednesday’s losses as investors continue to weigh up what impact the latest trade tariffs will have on the global economy. While markets have typically reacted negatively to any escalation on trade, the overall impact has been relatively modest under the circumstances that suggest investors are far from panic mode right now.
The U.S. dollar has resumed its rally after starting the first week of July on the back foot when it was hit by profit-taking following a three-month winning streak. Now that the Dollar Index has turned positive on the month could it finish the month of July higher, too? Investors have been piling in on the dollar because of higher interest rates in the United States and expectations that monetary conditions will tighten further in the coming months.