GERMANY BUSINESS SENTIMENT FALLS TO LOWEST LEVEL SINCE 2012
The global financial markets were little changed today after the ‘successful’ meeting between the US and North Korea in Singapore. This was the first meeting between the leaders of the two countries. The meeting ended with the signing of a document which Kim Jong Un committed to denuclearize the peninsula and improve relations with the US and South Korea. On his part, Trump promised to reduce the tensions in the peninsula by stopping the military war games in the region. While the meeting was a good thing for the world, the devil will be in the details as the two countries move to build trust and implement the goals reached.
In the United Kingdom, the pro-remain justice minister Philip Lee resigned from his post after disagreeing with Theresa May’s proposal. In a tweet, Philip said that the resignation will help him campaign against the proposals by the government. In addition to this, Theresa May continued to face the challenge of opposition from pro-European Conservative rebels who are opposed to her Brexit vote. On a positive side, data from the country showed that more people were employed in May than analysts had expected. The data showed that the employment change was at 146K, which was higher than the expected 126K. The unemployment rate remained unchanged at 4.2% while the average earnings were unchanged at 2.5%.
In the European Union, ZEW released disappointing business sentiment data. The EU economic sentiment fell to negative 12.6, which was lower than the expected 0.1 gain. In Germany, the sentiment fell to negative 16.1, which was lower than the expected negative 14.6 decline. This number was the lowest since 2012. The current conditions number was 80.6, which was lower than the expected 85. The sentiment has declined because of the ongoing tussles on trade with the United States. Over the weekend, Trump reportedly told Emmanuel Macron that the EU was worse on trade than China on trade. This could lead to more tariffs especially on German-made cars.
In the United States, the National Federation of Independent Business (NFIB) released the small business optimism numbers that beat the analysts’ forecasts. In June, the optimism rose to 107.8, beating the estimated 105.2 and May’s 104.8. This number was the highest since March, a reflection that small businesses are optimistic about Trump’s policies.
The US also released consumer prices today. The CPI rose by 0.2% in May and at an annualized rate of 2.8%. This was better than the expected 2.7% and April’s 2.5%. It was also the highest annual rate in more than 5 years. The core CPI – which excludes the volatile energy and food products – rose by 0.2% in May and at an annual rate of 2.2%. The rising inflation will play an important role in tomorrow’s Fed meeting where the officials are expected to hike interest rates.
The EUR/USD pair was little moved today, despite of the negative EU sentiment data and the positive US inflation data. The pair is now trading at 1.1790, which is in line with the two-week moving average. The RSI is currently at 54, an indication that the pair could continue moving up. If it does, it could cross the weekly high of 1.1820. However, traders should be cautious about tomorrow’s interest rate decision from the United States.
The GBP/USD pair was little moved today as the UK Brexit complications increased. The pair is now trading at 1.3365, which is lower than the weekly high of 1.3470. In the past three days, the pair has been trading in a sideways direction with the price being lower than the 30 and 60-day moving average. It is also slightly lower than the important support of 1.3400. The pair could turn lower as bears take control, which could see it test the 1.3300 level.
The Dow Jones Industrial Average futures is currently trading at $25,340, which is the highest level since March this year. The index’ bull run is mostly associated with the positive earnings and hopes that the Trump policies will continue to spur growth. It is currently trading above the 100 and 200-day moving average with the RSI being at 52. The index could continue to move up but traders should take caution especially because of the rhetoric on trade.