EU Daily Market Wrap - 5th May 2019

EU Daily Market Wrap - 5th May 2019

Today's Highlights

  • EU warns on Euro Area Risk and Impact of Protectionism;

  • US-China escalation is seriously increasing - China Global Time;

  • Iran to violate US sanctions and announce diminishing  commitment to Nuclear deal;

Macro Review

The market showed again signed of weakens to recent Trump's threat to impose 25% tariffs on all Chinese imports. After an initial rebound Global Stock Indices came under pressure as investor discount the possibility of an escalation in US-China trade war that could put the negotiations in stall indefinitely, according to sources. The general risk-off tone in global equities came also on the back of the updated EU forecast, which cut German output to 0.5% from 1.1% and saw Italian deficit rising beyond the 3% limit in 2020. The reaction saw, European indices lower, dragged by financials and manufacturing giants. On the geopolitical front, Iran announced to increase sales of Oil despite US sanctions and diminishing commitment to Nuclear deal. ABC News also suggested US aircraft carrier was deployed to middle east after Iran plan to attack american forces in the region.

Risk is off across the board and geopolitical risk is back in the market. Trump and his threat of slapping fresh rounds of tariffs on Chinese Imports remain the main (and only) concerns for global equities which extended losses after Sunday night gap lower at the Futures open. A lot of activity on the media today highlighting an increasing risk of congestion in talks between US and China, as neither parties are willing to give up on key concessions. Given the current relatively high levels in US stocks, today's market reaction seems reasonable and could be just short-lived. However, Trump's last comments won't ease tensions whose drivers now go beyond economics.

The FX space was mainly led by gains in US Dollar amid risk-off tone in Emerging Markets amid renewed tensions in Turkey and trade negotiations. The release of the updated EU economic forecast also weighed on EUR as German growth was revised lower for the  second consecutive quarter. On Brexit, another fake suggesting PM May resignation but without significant market reaction. Interesting resilience in AUD, which closed in positive today, despite risk-off tone after RBA excluded rate cuts for this year. JPY traded positive amid safe heavens inflow.

Crude dropped to $61 amid a stronger dollar and renewed trade tensions.

Gold closed above the 1280 level after a range bound session.

The Day Ahead

CNY Caixin PMI (overnight);

UK Service PMI (9.30 am);

EU Retail Sales (10.00 am);US ISM Non-Manufacturing PMI (3.00 pm);

EU Close

If you missed the morning briefing from the desk click HERE

Hope you enjoyed the session.

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