Inflationary expectations in the US continue to decline. Following the slowdown in consumer inflation, foreign trade prices also show negative dynamics. The price indices for imports and exports declined by 0.3% and 0.2% in May and on an annualized basis, the decline was 1.5% and 0.7%. The slowdown in prices is objectively lowering expectations for inflation.
The yield of 5-year TIPS bonds dropped to 1.56%, which indicates business confidence that the January minimum of 1.49% will be updated in the very near future.
State rates bonds are actively declining in most key countries. The yield on 10-year treasures has come close to 2%, which indicates growing market confidence while the Fed will begin the rate cut cycle no later than September.
The trade war for markets between the United States and China is gaining momentum. The parties are only trying to announce steps, after which a compromise will be impossible, but everything goes to this. More and more experts are inclined to conclude that the effect of Trump's tax reform is largely offset by a trade war. The WTO predicts that world trade will collapse by 17% in the event of a full-scale trade war, which in the face of a recession, could trigger the largest financial crisis in recent history.
Oil prices are not responding to provocation in the Gulf of Oman. The attack on US tankers officially blames Iran, but the evidence is comparable to the famous "Powell test tube".
In general, the markets cannot go into the growth phase, which would be expected against the background of the upcoming easing of the monetary policy of the Fed and a number of other central banks. Perhaps, the threat of a recession turns out to be stronger and even emergency measures will not help form a steady uptrend. The rise in gold prices is logical and will continue, as will the growth in demand for bonds.
The volume of industrial production in the eurozone fell by 0.5% in April with the annual reduction was 0.4%, which is slightly better than -0.7% a month earlier. However, the index has been in negative territory for 6 consecutive months, which is one of the clear signs of a recession.
The euro is losing ground for the resumption of growth. A decline is likely to happen on Friday to the nearest support zone of 1.1258/63 and then the target will be 1.170/75.
Private consumption in the UK is still the main driving force behind GDP growth, as a weak pound led to higher prices for imports and consequently, to higher prices. A year ago, this dynamic gave reason to hope that the Bank of England would look for a way to normalize monetary policy but the protracted decision on the Brexit issue led to a political crisis and an outflow of investments.
Despite the recession, the reduction in investment has not yet had a profound effect on economic growth. The situation in the eurozone looks even worse than in the UK at the moment.
The main source of uncertainty is still Brexit. The attempt to leave the EU on March 29 was postponed. The key date was postponed to October 31 and even this date may not be final. But first of all, another transfer means prolongation of the period of uncertainty. Thus, the pound is unlikely to be able to resume growth even if the main macroeconomic indicators contribute to this.
The race for the post of prime minister officially kicked off with Boris Johnson and the Minister of Foreign Affairs Jeremy Hunt are expected to be the leader of the round, which will take place on Tuesday, June 18th. Johnson's win will increase the likelihood of "exiting without a deal" and will weaken the pound.
The postponement of the Brexit date contributed to a decline in the GBP/USD pair. Against the background of a slowdown in world trade and the general return of the largest central banks to certain policy mitigation methods, there is no need to wait for any steps to tighten from the Bank of England. In the previous review, we assumed that the pound would go to the side range with the boundaries at 1.2653 to 1.2762. The pound strictly kept the forecast and currently, the probability of going down from the range has increased. The GBP/USD pair will drift towards the May minimum of 1.2556.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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