Crude proving resilient – Accendo Markets

Crude proving resilient –  Accendo Markets

Mike van Dulken, Head of Research at Accendo Markets commented to clients this morning:

FTSE 100 Index called to open +5pts at 7360 after another overnight bounce from 7340 but  still under pressure from falling highs resistance to maintain the 3-week down channel. Bulls need a breakout above to challenge Monday’s 7385 highs. Bears  are watching for a breach of rising support at 7350 to extend the falling channel. Bullish 7380, Bearish 7340.

Calls for a mildly positive open come after a mixed session in Asia overnight, with no US market lead due to the Independence day holiday. Geopolitics is very much back to the fore after North Korea’s missile launch and the Qatar crisis still rumbling on. Watch the GBP and EUR having found a floor as the USD bounce eases. This could hinder the FTSE and DAX should their respective currencies claw back some lost ground.

Overnight, Japan’s Nikkei recovered from yesterday’s drop thanks to improved PMI Services and despite a firmer Yen. Australia’s ASX gave us some of yesterday’s gains, despite a jump in Services PMI, with financials and real estate bearing the brunt. Perhaps due to a disappointing China PMI Services figure at odds with Monday’s Manufacturing return to growth?

Crude Oil is showing remarkable resilience, holding around recent highs, still in steep rising channels and Brent flirting with the psychological $50/barrel mark. Pause before another up leg? Waiting to hear more about Qatar? Note US inventory data delayed on account of the US Independence day holiday this week.

Gold is back from its $1229 overnight best, as the USD Index bounces back from yesterday’s lows. However, it has still managed to extend its rebound from 7-week lows after a joint military exercise between the US and South Korea, and has potential to revisit $1230.

In focus today will be PMI Services from the Eurozone (8.15-9am) and UK (9.30am) for additional economic clues and read-across to central bank policy impact. The former is expected to confirm declines of 2-3pts in June, still tempering from 2017 highs but above the key 50 mark. The latter, however, is forecast to have held firm around its 12-month average.

With the Bank of England appearing to have tilted more hawkishly, keep an eye on UK Labour Costs (9.30am) for any improvement that might narrow the current consumer-squeezing high inflation/low wage growth gap that has been taunting Carney and the gang on Threadneedle this year. UK PM May is sure to get yet another drilling at this week’s PMQs (midday), from both within her own ranks (pro-EU) and the newly bolstered opposition.

In the afternoon, with the US back from its Independence Day holiday, US ISM New York (2.45pm) will be looked to for any recovery from its May slump. US Factory Orders (3pm) growth is forecast to have declined further in May, although the ex-transport figure may be more pertinent along with revised figures for Durable Goods Orders.

After the Fed’s June hike despite falling inflation, the latest Fed FOMC Minutes could be a hawkish market driver overnight (bonds and USD especially), if it sounds confident that core inflation will bounce back. Hints about when it will begin shrinking its balance sheet could also impact market sentiment. The sooner the more hawkish.

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