Global Downturn Weakens Demand In Spite of Cheap Euro
German factory orders in May contracted by 0.2%, according to figures released yesterday, showing an increasing weakness in German exports – this due to a slowdown in global trade that pressured the number downwards. Despite the push higher in metrics from the weakening Euro, pricing benefits and improved competitiveness, the initial stimulus might be gone. Following a 2.2% growth in the previous month’s reading, the situation is far from ameliorated by the risk factors posed by Greece, now experiencing capital controls and extended bank holidays. The crisis is far from over, even with the more popular (amongst creditors) Euclid Tsakalotos replacing Yanis Varoufakis as the Greek Finance Minister. Indices reacted to the new, with the EURUSD bouncing and filling in the reopening gap lower before resuming the trend downwards.
Australian Reserve Bank policymakers decided to maintain the key interest rate at 2% at their meeting overnight and to maintain an accommodative position. The AUD rose slightly against the USD following the interest rate announcement. Based on RBA data, the local economy is growing moderately, as is spare capacity. Inflation over the next year or two is forecast to remain at or above target, but below-trend growth may persist. Homeowner and business loans are strongly on the rise, and the central bank is struggling to control real estate value appreciation. Although currently at comfortable levels, bank officials expect to see the exchange rate depreciating further to counter last year’s sharp drops in commodity prices.
China’s policymakers have banned pension funds from selling shares, in a move aimed at offsetting the instability in the Chinese stock market. The People’s Bank of China inaugurated an experiment yesterday in buying shares early at the opening; however, the ensuing downside disappointed regulators who today failed to maintain the level of shares as margin debt slides. The Shanghai Composite is presently trading 1.51% lower, and the Hong Kong Hang Seng has dropped by 0.72% - all this amidst constant deleveraging and an 11-session long shrinkage of margin debt trading. For now, policymakers are trying to improve the market structure in order to temper momentum swings. Unfortunately, the tech-heavy ChiNext index has fallen from last month’s highs by 40%, stemming their efforts to prevent a drop.
FTSE 100 Descending Triangle Trading Opportunity
Even amid the robust growth currently being experienced in the UK economy, the Conservative government is planning to take painful budgetary measures closely mirroring the austerity measures being propagated around Europe. Cutting costs is the primary objective of this new plan as the government seeks to get back to surplus territory amid the increasingly fragile economic situation just across the English channel. Although the Pound has strengthened dramatically since the election, the benchmark FTSE 100 equity index is plumbing levels last seen in January as optimism in stocks wanes. The near-term downtrend combined with the support at 6448 form a descending triangle pattern exhibiting a strongly bearish bias. A move below the lower channel line would indicate a triangle-based breakout to the downside to be accompanied by increased momentum.
Wishing you a successful trading day, NetoTrade Analysts Team