- Group members team up to express displeasure with metal tariffs from the United States
- An official communique was not released after day one, a reversal from the norm
- US President Donald Trump will leave the summit early to attend the summit with North Korea
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The Group of Seven met Friday to discuss the themes laid out by the Canadian host, but the summit was likely focused on concerns over metal tariffs imposed by the United States. Leading up to the event, markets were focused on the G-7 currencies and economies while looking forward to any progress made in de-escalating trade tensions. Unfortunately, the first day of the summit may have been less than productive. French President Emanual Macron said he would not sign an official communique, a summary of the member’s agreements. Similarly, German Prime Minister Angela Merkel said “the lack of a communique would be a sign of honesty, showing we couldn’t agree.” Last year’s communique included the conclusions agreed upon by each member nation. Topics of note in the previous communique were: trade, the global economy, and inequality. The inability or unwillingness to produce an agreement highlights the depth of division between members at this year’s summit.
Although the summit appears gridlocked heading into the second day, slight progress could be championed by the group after day one. A suggestion from Germany’s Merkel to create a “shared assessment and dialogue” mechanism to discuss trade issues was received positively by other officials from the group. European Commission President Juncker said that he was personally ready to invest in it, while Canada’s Trudeau remarked he is holding out hope that progress can be made on the less controversial topics, but noted that President Trump would not be present for the second day of talks. President Trump told reporters he will leave Canada Saturday morning to fly to Singapore in preparation for the summit with North Korea leader Kim Jong-un on June 12th.
Despite the gridlock at this year’s summit, any facetime that the leaders have provides them with an opportunity to de-escalate the spread oftrade warsexacerbated by the US metal tariffs imposed on June 1st. It could also turn into an opportunity for the United States’ peers to corroborate on a response. The two-day G-7 summit remains an important source of collaboration for developed economies and offers insight on other partnerships like NAFTA. The next opportunity for all these nations to convene and discuss trade is not immediately clear and the next G-7 meeting is not until 2019. In the meantime, trade officials will likely meet frequently for bilateral discussion. In similar fashion, President Trump has a meeting Saturday morning with Japanese Prime Minister Shinzo Abe. Japan has been subject to the metal tariffs since May 1st so trade will likely be an important topic.
Financial markets have been largely subdued in their response to the summit so far. Stocks produced small gains on Friday and the dollar was mixed, gaining against the euro and dropping against the yen and loonie. Moving forward, investors will be wary of any substantial information produced from the summit as tariffs remain in place and NAFTA remains in flux. If the uncertainty around global trade remains through the weekend – a likely outcome – the markets will have to shift gears and respond to important Federal Reserve and European Central Bank rate decisions Wednesday and Thursday respectively.
Chart 1: S&P 500 1 Hour, June 3-8
Chart 2: EUR/USD 1 Hour, June 3-8
Chart 3: USD/JPY 1 Hour, June 3-8
Chart 4: USD/CAD 1 Hour, June 3-8
Demand for Safe Havens Weakens as Market Sentiment Improves
Safe haven prices, news and analysis:
– Confidence is returning to financial markets, lessening the demand for safe-haven assets.
– However, the recovery is precarious and they could soon be back in favor.
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Market sentiment picks up
Indications that China’s central bank is looking to ease monetary policy are offsetting the continuing concerns about a US-China trade war, lifting market sentiment and prompting investors to move out of safe-haven assets into those seen as more risky and therefore potentially more profitable.
Prices of all the traditional safe-havens, including the Swiss Franc, the Japanese Yen, Gold, US Treasuries and German Bunds, are weakening Wednesday although many hurdles remain, including the possibility that the trade wars could flare up again.
Looking at these individually, USDJPY rose modestly Wednesday after three successive days of falls and the uptrend in the pair remains in place.
USDJPY Price Chart, Daily Timeframe (Year to Date)
Similarly, USDCHF is rallying and it too remains in an uptrend.
USDCHF Price Chart, Daily Timeframe (Year to Date)
The price of Gold continues to fall and is now down from a high of $1,365.36 per ounce on April 11 to $1,272.17 although any return of risk aversion would slow its decline. The yield on the benchmark US Treasury note – which moves inversely to its price – has increased from a low of 2.77% on May 29 to 2.90% and the yield on the 10-year German Bund is up from 0.255% to 0.367% over the same period.
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Most Asian Shares Rise, Sentiment Better. ASX 200 Tests Breakout
Asian Stocks Talking Points:
- Most Asian shares recover as trade war worries settled down, anti-risk Yen fell
- Next, markets eye a central bank panel with commentary from important officials
- ASX 200 is testing a breakout, opening the door to a resumption of its uptrend
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As expected, Asian shares took a breather from yesterday’s aggressive selloff which was sparked by increased trade tensions between the US and China. A lack of updates as traders await further escalation allowed some stock markets to consolidate.
BACKGROUND: A Brief History of Trade Wars, 1900-Present
In Japan, the Nikkei 225 rose more than 0.30 percent by Wednesday afternoon trade. Most of the gains were from the telecommunication services and health care sectors. Chinese shares were held down though with the Shanghai Composite falling about 0.60 percent. Australia’s ASX 200 climbed, pushed higher by financials and information technology. The KOSPI pulled ahead, rising more than one percent.
On the FX side of things, the lull in trade war rhetoric diminished demand for safe havens. The anti-risk Japanese Yen was cautiously lower while the sentiment-linked Australian and New Zealand Dollars appreciated.
From here, aside from updates on tariff retaliations, all eyes will be on a central bank policy panel that takes place in Sintra, Portugal. We will get commentary from Fed’s Jerome Powell, ECB’s Mario Draghi, RBA’s Philip Lowe and BoJ’s Haruhiko Kuroda.
Amidst last week’s monetary policy announcements from the Fed and ECB, speeches from Mr. Powell and Mr. Draghi can arguably have more potential for FX volatility. If the Fed Chair reiterates last week’s hawkish tone while the ECB President sticks to a more dovish one, then we may see some US Dollar gains at the expense of its European counterpart.
ASX 200 Technical Analysis: More Gains Ahead?
On a daily chart, Australia’s ASX 200 was stuck right below immediate horizontal resistance levels as of Tuesday’s close. These are a combination of the January, May and current June highs between 6,158 and 6,149. However, as of today’s cooldown in trade war fears, the index is attempting a push to the upside for a new 2018 high.
This opens the door to more gains in the coming days as the ASX 200 resumes its uptrend from early April. From here, a push above resistance exposes the 50 percent midpoint of the Fibonacci extension at 6,202 followed by the 61.8% level at 6,264. On the other hand, a turn below if resistance holds places the 23.6% extension as the first target at 6,064. Under that, the index faces a near-term rising support channel going back to late-May.
ASX 200 and other equities Trading Resources:
— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
USD/JPY Could Be Set To Bounce
JAPANESE YEN TECHNICAL ANALYSIS TALKING POINTS:
- The Japanese Yen has seen broad gains against its developed market peers
- However, its overall downtrend remains in place in many cases
- This week could see it reasserted
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The Japanese Yen has caught a quite strong haven bid this week as trade tensions between China and the US bubble back to the surface of market concerns once again.
Technically speaking however, US/JPY has tested the bottom of a minor uptrend channel which has been in place since May 30. It has survived, just but in any case the broader, longer uptrend which has bounded trade all through the year’s second quarter remains very much in place.
The Japanese Yen remains under considerable fundamental pressure from widely diverging interest-rate differentials with the US. The Federal Reserve has just raised interest rates once again and seems determined to continue the process for as long as the data allow. The Bank of Japan meanwhile has been forced to watch the modest inflation resurgence seen early this year collapse, taking with it any prospect that its own ultra-loose monetary policy can be unwound anytime soon.
This week’s official Japanese inflation numbers are likely to underscore that weakness and may put the Yen under renewed pressure, provided that no more bad news appears on market radar from the direction of global trade. Another bout of Yen weakness could see USD/JPY back up to its recent highs of 110.74 in quite short order. That said a return to late May’s peaks in the mid 111s seems unlikely unless some clear resolution to trade difficulties is seen- an unlikely short term prospect.
Reversals for the pair are likely to find support at this week’s 109.49 lows, with the broader channel base of 109.20 waiting below that.
The Japanese Yen’s haven bid has been pretty universal, with the Australian Dollar a particular target. AUD/JPY has been returned to the lows of late May which had not previously been seen since November, 2016.
The cross is now skirting 50% Fibonacci retracement of its long climb up from the lows of mid-2016 to the highs of September, 2017. That comes in at JPY81.40 and seems to be failing. A weekly close below that level would probably bring the next, 61.8% retracement into Aussie bear’s sights. That comes in some way below the market at JPY79.54.
Worryingly for Australian Dollar bulls the currency does not yet look notably oversold, judging by the cross’ Relative Strength Index, and it is likely that momentum to the downside has yet to dissipate.
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— Written by David Cottle, DailyFX Research
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