Europe Points To Mildly Positive Start On Recovery Optimism, Despite Rising US-Sino Tensions

European futures are holding onto positive ground as US – Chinese relations return to the spotlight, threatening to overshadow optimism surrounding the global economic recovery as lockdown measures ease

Charts (5)

Asian shares slipped lower overnight, although Europe futures are holding onto positive ground as US – Chinese relations return to the spotlight, threatening to overshadow optimism surrounding the global economic recovery as lockdown measures ease.

Trump has promised a response by the end of the week to China’s manhandling of Hong Kong’s law and more broadly its crack down on liberties in the financial hub. In turn China has threatened countermeasures against the US in the latest showing of escalating tensions between the two powers. The overriding concern here is that the cooling relations between the two largest economies could hamper the post coronavirus economic recovery.

Chinese factory profits fall less
Chinese data overnight is going some way to boost optimism. Profits at Chinese factories fell at a slower pace in April, aided by a pick-up in automobiles and electronics. Factory profits slipped by -4.3% in April, a huge improvement from March’s -35% decline.
These are tentative signs that China is reigniting its engine and demand is slower returning. However, no quick bounce back is on the cards here. The damage caused by coronavirus to the economy is expected to keep the economy and businesses under pressure for the rest of the year. 

Inovio joins vaccine progress list
Vaccine news continues to offer support to sentiment. Inovio has become the latest to join the list of firms reporting progress in its efforts to find an immunisation for covid-19. Inovio joins Novavax, Moderna, Oxford University and others which are progressing towards a vaccine which would enable a rapid recovery to pre-virus levels

Dollar picks up off 18 day low
The mixed picture painted from vaccine optimism, from cautiously encouraging Chinese data and concerns over US -Chinese tensions is setting the scene for a mixed session. European and US futures are pointing to a mildly stronger start on the open. The US Dollar is pulling safe have bids, the traditional safe haven gold is slipping lower for a third straight session, finding support at $1700.

Oil fails to break $35
Oil is also pulling lower on Wednesday, after gaining just shy of 4.5% across the past two sessions, although failing to test resistance at $35. WTI is currently down 0.7% highlighting the fragility of its recovery. 

In the US we are heading into peak demand season just as states are easing lock down restrictions and reopening. New York, is expected to reopen in June. Even so, demand across the year is expected to be down around 30% as people stay close to home. Souring US – Chinese relations are also bringing a negative tone to oil trading.

FTSE levels
The FTSE is set to open 0.7% higher on the open around 6110. It trades above its 20 & 50 sma on 4 hour chart, a bullish sign.
Immediate support can be seen at 6045 (overnight low) and 5890 (low 22nd May) and 5660 (low 14th May).
Immediate resistance can be seen at 6168 (yesterday’s high), 6210 (high 12th April) and 6459 )high 6th March)

Build your confidence risk free

More from Indices

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.