Day Ahead: Three Things to Watch Out For Today

Yesterday, US stocks rose sharply after Fed chair announced that the Fed was likely to lower rates if the trade war escalates. Analysts believe that the closest the Fed can lower rates is in its September meeting. In response to the US gains, Asian stocks rose as well. Today, investors will focus on the following.

First, they will continue to focus on the delicate issue of trade between United States, Mexico, and China. On Mexico, the tariffs announced by Trump are set to take effect on June 10. To prevent these tariffs, Mexican officials are already in Washington, meeting with key officials like Mike Pompeo. However, with Trump in Europe, these talks will likely yield no results. As traders wait for a way forward, the Mexican peso remains being weaker than the US dollar as shown below.

Second, investors will focus on crude oil. Since April, the price of crude oil has been teetering on the edge of a bear market, after falling by almost 20%. The declines are associated with the increased US inventories and the likelihood of a low demand as the trade war escalates. Yesterday, a report by the American Petroleum Institute (API) showed that inventories rose by more than 3.5 million barrels in the past one week. This was higher than the median estimate of 2 million barrels decline. Today, investors will receive the inventory data from the EIA. The chart below shows the recent trend of the Brent and WTI prices.

Third, investors will receive the jobs data from ADP. ADP is a public company that offers staffing solutions, which gives it a unique perspective of the labour market. The data is expected to show that the economy added more than 180K jobs in May. This will be lower than the 275K jobs created in April. Still, it will be a good number. This data will come a day after the Fed chair talked about rate cuts. However, investors don’t follow this number a lot because it tends to differ from the official government data. The chart below shows the performance of the dollar index. In addition, investors will receive the non-manufacturing PMI data from ISM.

In Europe, investors will receive the German composite and services PMI. They expect this data to remain unchanged. In the EU, the retail sales are expcted to fall to 1.5% from the previous 1.9%. The PPI is expected to rise to 3.2% from the previous 2.9%. In the United Kingdom, the services PMI is expected to rise slightly to 50.6 from the previous 50.4. This data will come as the ECB starts its monetary policy meeting. It is expected to leave rates unchanged tomorrow. The chart below shows the performance of EUR/GBP pair.

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