Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Tuesday, May 29: Five Things Markets Are Talking About

By Dean PopplewellMarket OverviewMay 29, 2018 10:00
Tuesday, May 29: Five Things Markets Are Talking About
By Dean Popplewell   |  May 29, 2018 10:00
Saved. See Saved Items.
This article has already been saved in your Saved Items

Threat of Euro fragmentation

U.S. Treasuries have rallied alongside a number of core-European bonds as the political crisis in Italy and Spain deepens, triggering risk-off trading across capital markets.

The EUR (€1.1512) has tested fresh 11-month lows outright in early Euro trading after Italy’s president scuttled an attempt by a coalition of Italian anti-establishment parties to form a government. With fresh elections appearing increasingly likely, investors should expect the Five Star and the League to campaign on the idea that they were denied the “right to govern,” possibly resulting in a stronger populist sentiment at the next election. This would certainly pose risks to the European integration France and Germany are campaigning for.

Note: An Italian election would resemble a referendum, de facto, on the E.U. and the single unit.

Meanwhile in Spain, parliament is set to vote Friday, June 1, on whether to oust Prime Minister Mariano Rajoy and replace his center-right government with one led by the center-left Socialist Party after a Spanish court ruled that Rajoy’s Popular Party financially benefited from an illegal kickback scheme.

1. Global equities extend losses on geopolitical concerns

In Japan, stocks fell to one-month lows overnight, with investors selling cyclical shares as concerns over European politics added to the list of reasons to be cautious about the global economic outlook. The Nikkei average dropped 0.5%, the lowest close in four weeks, while the broader Topix fell 0.48%.

Down-under, the Aussie shares ended higher on Tuesday, lifted by financials, though gains were capped by declines for consumer and telecom stocks. The S&P/ASX 200 index closed 0.2% higher. The benchmark declined 0.5% on Monday. In South Korea, the KOSPI also came under pressure closing down 0.9%.

In Hong Kong, stocks ended lower, led by financials, as risk appetite was curbed by market volatility in Europe. The Hang Seng index ended 1% lower, while the Hang Seng China Enterprise (CEI) closed down 1.3%.

In China, stocks posted a fifth consecutive session of losses overnight, as investors become concerned about credit risks amid more bond defaults. The blue-chip CSI 300 index fell 0.8%, while the Shanghai Composite Index closed down 0.5%.

In Europe, regional bourses open down across the board and have continued the trend as the session progresses. Declines in benchmark U.S. and German bond yields combined with continued uncertainty about regional politics is again put pressure on European bank shares.

Indices: Stoxx50 -1.8% at 3,424, FTSE -1.4% at 7,623, DAX -1.5% at 12,666, CAC 40 -1.6% at 5,421; IBEX 35 -2.2% at 9,543, FTSE MIB -2.4% at 21,423, SMI (CS:SMI) -1.2% at 8,669, S&P 500 Futures -0.7%

Brent crude for May 28-30, 2018.
Brent crude for May 28-30, 2018.

2. Oil prices pressure builds on expected crude output increase, gold lower

Oil prices remain under pressure from expectations that Saudi Arabia and Russia would pump more crude oil to ease a potential shortfall in supply.

Brent crude futures are up 21c, or 0.28%, at $75.51 a barrel, after settling at their lowest yesterday since May 8 at $75.30. U.S. West Texas Intermediate (WTI) crude is down $1.11, or 1.64%, at $66.77 a barrel, sitting around its lowest since April 17.

Note: The spread between Brent and WTI stands at around $8.7 a barrel, the widest since March 2015 due to the depressed price of U.S. crude compared to Brent.

Concerns that Saudi Arabia and Russia could boost output have put downward pressures on oil prices; along with rising oil production in the U.S.

Both parties have discussed raising OPEC and non-OPEC oil production by some 1 million bpd to make up potential supply shortfalls from Venezuela and Iran. Critics don’t believe there is enough time to hammer out a deal before the next OPEC meeting.

Note: OPEC is due to meet in Vienna on June 22.

Ahead of the U.S. open, gold prices have eased a tad as a stronger U.S. dollar continues to weigh on the market amid renewed hopes of an U.S/North Korea summit. Spot gold is 0.1% lower at $1,296.91 per ounce, while U.S. gold futures for June delivery fell 0.6% to $1,296.40 per ounce. Nevertheless, expect the yellow metal to find safe haven support on pullbacks.

Gold for May 28-30, 2018.
Gold for May 28-30, 2018.

3. G7 sovereign yields plummet on risk aversion

In coming back online after the Memorial Day weekend, U.S. Treasury’s have found strong support amid geo-political uncertainty – Italy, Spain and North Korea.

Italian government debt prices have slid hard since the country’s president scuttled an attempt on the weekend by a coalition of Italian anti-establishment parties to form a government after March’s elections.

The new possibility of fresh elections in the fall has sent the Italian 10-year government BTP bond yield higher, 2.865% from 2.36% early yesterday, while the interest-rate spread over similar German bunds has widened above 250 bps, the highest in five years, indicating a high level of market stress.

Elsewhere, yields on U.S. 10-year Treasury’s has edged down to 2.872% from 2.931% at the end of last week. In Germany, 10-year Bund yields have dipped 4 bps to 0.30%, hitting the lowest in more than five months with its fifth straight decline. While in the U.K., the 10-year Gilt yield fell 6 bps to 1.321%, reaching the lowest in 20 weeks on its fifth straight decline.

EUR/USD for May 28-30, 2018.
EUR/USD for May 28-30, 2018.

4. Euro drops to 10-month lows

Geopolitical uncertainties favor safe-haven flows – USD, CHF and JPY currencies in the overnight session. The US Dollar Index is again trading atop of its seven-month highs.

EUR/USD has extended its losses, falling to a 11-month low of €1.1512 ahead of the U.S. open. As noted above, the slide in the German Bund yield and the widening spread between Bunds and Italian BTP yields is likely to push the ‘single unit’ down further.

The yen currency is firmer with USD/JPY testing below ¥108.50 and EUR/JPY registering its largest decline in four months as the cross tested the lower area of the €125.42 handle, down 1.1%.

Elsewhere, consumer confidence in Sweden has fallen below market expectations in May to 98.5 from 100.3 in April and has sent EUR/SEK up to a two-week high of €10.3401 and this despite the EUR being battered by Italian politics.

EUR/TRY for May 28-30, 2018.
EUR/TRY for May 28-30, 2018.

5. The Central Bank of Turkey pledges to simplify rates

Yesterday, Turkey’s central bank (CBRT) decided to complete the simplification of its monetary policy by setting the one-week repo rate as the policy rate, which will be equal to the current funding rate of 16.5%, in a move to support the TRY.

Note: TRY found immediate support, rising 2.5% outright at $4.5950

The central bank’s simplification process aims to adopt “a single rate to set policy instead of using multiple interest rates.”

CBRT’s overnight borrowing and lending rates will be determined at 150 bps below/above the one-week repo rate and the new operational framework will take effect on June 1.

Note: CBRT took emergency action last week, raising one of its interest rates by 300 bps, in a bid to stop TRY’s fall ahead of presidential and parliamentary elections next month.

US Dollar Index for May 28-29, 2018.
US Dollar Index for May 28-29, 2018.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Tuesday, May 29: Five Things Markets Are Talking About

Related Articles

FactSet Research Systems Inc
Podcast : Financial Market Preview - Monday 24-Jan By FactSet Research Systems Inc - Jan 24, 2022

US equity futures are indicating a higher open as of 05:00 ET. European equities broadly lower Monday. This follows a mixed session in Asia although the Nikkei and ASX finished...

Tuesday, May 29: Five Things Markets Are Talking About

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email