Originally published by AxiTrader
Markets Overview:
- Equities: Nikkei 225 (+0.55 %), Hang Seng (-0.14 %), CSI 300 (-0.33 %), KOSPI (+0.21 %), S&P/ASX 200 (-0.06 %)
- Commodities: WTI Crude $51.55 (+0.16 %), Brent Crude $54.24 (+0.17 %), Natural Gas $3.24 (+0.50 %), Gold $1252.34 (+0.09 %), Copper $257.20 (-0.92 %)
What traders are talking about:
The big news overnight was the downgrade of China’s credit rating by Moody’s. The agency lowered the rating from A1 to AA3, while also changing the outlook from stable to negative. This is the first China downgrade by Moody's since 1998 and first general downgrade since 2010 (which was done by S&P). Moody's cited the likelihood of a material rise in economy-wide debt and the burden that it will place on the state's finances as main reason.
The downgrade could certainly have an impact on the cost of financing of Chinese issuers in the offshore market. Further, the event could pave the way for another downgrade by one of the other two major rating agencies.
Chinese stocks tumbled more than one percent following the announcement, although they have recovered somewhat in the meanwhile. Shares in Hong Kong also came under pressure. Meanwhile, the other major APAC indices had a mixed performance, with the Nikkei up 0.50 percent and the ASX down 0.05 percent on the day.
European equities are likely to start the trading day slightly lower. Meanwhile, the S&P 500 future is down 3 points since the US close.
In FX, the yuan fell slightly along with the Aussie dollar. With China being Australia’s most important trading partner, the currency is relative sensitive to developments in China. From a technical perspective, the short-term outlook for AUD/USD looks rather weak. Resistance at 0.75 proved to be too strong, and the break back below 0.7470 support suggests the currency pair could extend losses further in the near-term. Immediate support is seen at 0.7410, with the next major level then at 0.7330 (May low).
The Bank of Canada is deciding on interest rates today. No changes are expected, but the central bank is likely to keep its dovish bias as the performance of the Canadian economy has been rather mixed. Further, potential trade conflicts between the US and Canada weigh on the sentiment as well.
Recent positioning data shows that the amount of CAD short positions lies at a record high. This increases the risk of a short squeeze, especially if the BoC is not as dovish as expected. Expect decent resistance at 1.3550, followed by 1.36. To the downside, the key level to watch is 1.3460.
The Federal Reserve will also publish the meeting minutes from its latest meeting. The US central bank is likely to leave a June rate hike firmly in play. Despite the mixed econ data recently, the US is near full employment and the inflation outlook remains relatively stable. The FOMC minutes are likely to be a non-event overall, though traders will be interested to hear more details about the planned reduction of the balance sheet.
Economic Calendar:
- 09:30 BST - ECB Member Praet speaks
- 13:45 BST - ECB President Draghi speaks
- 15:00 BST - US Existing Home Sales
- 15:00 BST - Bank of Canada Rate Decision
- 15:30 BST - US Crude Oil Inventories
- 19:00 BST - FOMC Meeting Minutes