Investors are concerned about global trade and prospects for the global economy
Conflict over Huawei
Theresa May's resignation
Elections to the European Parliament
Oil price collapse
Trade conflict between the U.S. and China is still the main topic in the financial market. At the beginning of the week, the United States escalated the conflict and limited the activities of the Chinese corporation Huawei Technologies in the United States. The company has been blacklisted and is now unable to purchase U.S. technology. Google and Microsoft have already announced the suspension of cooperation with Huawei. In addition, the license for Huawei's activities was officially extended only until August 19, 2019. Chinese authorities have warned Washington against "dangerous" actions against Chinese companies and openly accused the U.S. of escalating the conflict. In response, Donald Trump did not rule out that Huawei could become a "bargaining chip" in trade relations between the U.S. and China, and could be included in the trade agreement between the countries.
The escalation of the conflict caused panic in the financial markets and led to the collapse of major stock indices and many commodity assets in the middle of the trading week. The main beneficiaries of the new conflict escalation were traditional protective assets such as gold and the Japanese yen.
The currency market spent the first half of the week in a rather narrow price range, maintaining the lateral dynamics of the movement against the background of the important economic news absence. The only exception was the British pound sterling, which kept a bearish trend against the background of growing uncertainty around Brexit and rumors about possible resignation of Theresa May. These rumors were not officially confirmed until Friday, when Theresa May announced that she would leave her post on June 7. The market has taken these statements quite calmly as the event was expected. Still, May's resignation does not solve the problems of the British currency, but only increases the uncertainty about the future political course of Great Britain and Brexit. Therefore, the prospects of GBP/USD pair do not look very bright at the moment.
The two major world currencies (EUR and USD) were nerve-wracking to the investors during the week. Until Thursday, the currency pair moved in a very narrow price range, lulling trader’s vigilance, and on Thursday gave a huge performance, resulting in an update of two-year lows and movement of one figure up. The reason for such reaction of the market was weak data of economic statistics from the USA and Europe, which were presented on Thursday, and the influence of technical factors, as many investors began to actively fix short positions on EUR/USD after the new multi-month lows were reached. But, in our opinion, the dollar retains a strategic advantage over the euro in almost all respects, so in the near future the bearish trend of EUR/USD should be resumed.
Precious metals market
Most of the week gold was traded in a very narrow price range, focusing mainly on the dynamics of the U.S. currency, which remains the main benchmark for many investors. Significant growth of quotations occurred on Thursday, when both the U.S. dollar and major stock indices were under strong pressure, significantly increasing the interest of investors in protective assets. But on Friday the market situation has changed and yellow metal closes the trading week almost at the opening level.
The oil market was under a very strong pressure throughout the week, on Thursday alone the decline in Brent and WTI was more than 5%. Pressure on the price was exerted by the situation in stock markets, where there was very low interest of investors in risky assets. Oil traders are very concerned about the situation in the world trade and the prospects for the development of the global economy. Many are afraid of the demand for energy decreasing in the medium and long term. Stirring the pot was the industry data from the U.S , where an increase in the level of reserves to the maximum values since July 2017 was recorded.
The stock market has been following the development of the conflict between the U.S. and China all week and has been trading in different directions, reacting to any news from both sides. The strongest decline in major indices occurred on Thursday, when many investors, fearing further escalation of the conflict, began to get rid of all risky assets. But on Friday the market situation stabilized and the majority of indices managed to win back some of the losses incurred earlier. For investors, the main concern should be to assess the economic damage from the trade conflict as well as the possible reaction of the main central banks, which can soften their rhetoric to support the markets.