The G20 summit did not bring any significant changes in the topic of trade negotiations between Washington and Beijing. The parties only agreed on the continuation of the very fact of the negotiation process, which is not yet clear in what form it will take place, and agreed on a prolongation of the moratorium on the increase in customs duties. But it seems that this is already viewed by investors as a kind of positive, in which they want to believe in any case.
This news had a positive local effect on market sentiment and led to an increase in demand for risky assets and increased the pressure on the US dollar but receives considerable support for major currencies today, on Monday. despite the publication of weak data index of business activity in the manufacturing sector (PMI) from Caixin, China's stock market fell below the level of 50 points to 49.4 points, indicating a decline in business activity and not just a decrease in its growth.
What is the reason for the growth of Chinese stocks? We believe that the source of positive is the growth of expectations of expanding incentives from local monetary authorities. A similar picture is observed today in the dynamics of futures on the major US stock indices, which are growing before the opening of trading in Europe by more than 1.0%. By the way, it is also quite noticeably adds to the yield and the benchmark of 10-yr treasuries growing by 1.89% to 2.038% at the moment.
There is a somewhat paradoxical situation on the market. On the one hand, the demand for risky assets is clearly growing against the backdrop of increasing expectations of new incentives in China, Europe and lowering interest rates in the United State. On the other hand, the dollar rate is rising, which is natural when treasury yields increase, but they do not beat with the prospect of continued growth in demand for shares of US companies.
In our opinion, the reason is some discrepancies in the assessment of the prospects of market dynamics by investors. Some people probably believe that reducing the degree of tension between the United States and China will lead to the conclusion of a trade agreement between the countries. This spurs demand for stocks of companies, not only in the States and China but also in the whole world. Others believe that this reduction in tension will delay the Fed's decision to begin the process of lowering interest rates, which is why we are seeing a sharp rise in the yield of treasuries and an increase in the dollar.
Today, the attention of the markets will be drawn to the publication of data on the index of business activity in the manufacturing sector in Germany, the eurozone, the UK and the US. From the point of view of possible movements today, figures from the United States will be interesting in the near future since they will undoubtedly have an impact on the dollar exchange rate. It is assumed that the indicator will show a decline to 51.0 points in June against 52.1 points in May.
If the data turns out to be worse than expected, it will have to put pressure on the dollar as they will stimulate a rise in hopes that the Fed will be forced to lower interest rates. On the contrary, if they turn out to be higher than the forecast, then this will support the limited growth of the dollar rate.
Forecast of the day:
The EUR/USD pair fell below 1.1350. It can continue to fall to 1.1290 if the data of the index of business activity in the manufacturing sector in Germany and the eurozone are weaker than forecasts.
The USD/JPY pair is growing due to the release of weak data from the business activity index in the manufacturing sector of Japan and against the background of a decrease in tension around trade negotiations between the US and the PRC. It is likely to continue growing towards 108.70 and then to 109.15.
