Dow Futures Post Biggest Drop in Three Months

Daily Analysis - 18/08/2017

Trump’s Planned Pro-Growth Policies Overshadowed by Mounting Criticism

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The Dow Jones Industrial Average recorded its biggest drop since May 17th as concerns surrounding President Donald Trump's recent controversies make it less likely for the US Congress to co-operate with him on proposed business-friendly legislation. The selloff in the blue chip index started amid fears that Gary Cohen could step down from his role as director of the National Economic Council.

Market Resilience Broken as US Sentiment Nosedives


Political jitters in Washington finally caught up with US equity markets as rumours swirl that President Trump’s closest economic advisers at the White House could abandon him following his controversial remarks on the deadly weekend protest.

The reigning fear on Wall Street is that Trump's lack of support within his own party and the wider business community could result in a legislative gridlock and snuff the life out of the President’s pro-growth agenda.

Adding to these fears was his move to disband the business council after the exit of several higher profile CEOs.  Investors also kept an eye on Europe, after a terror attack in Barcelona killed 13 people.

The Dow Jones Industrial Average September fell over 1.00% on Thursday, with the index last trading around the 21740-mark. A break below key support at 21680 could see the selloff in the index intensify.

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ECB Concerned Over Risk of Euro Overshoot


The Euro tumbled to a three-week low against the US dollar on Thursday after minutes from the European Central Bank's July meeting displayed the level of policymaker concern regarding the recent Euro appreciation.

The common currency has dramatically surged in recent months, buoyed by the region’s economic recovery. However, ECB officials are worried that any significant rise could threaten the Central Bank’s efforts to lift inflation.

The Bank’s Governing Council’s next meeting is scheduled for September 7th, when a discussion on tapering of quantitative easing is expected to commence. The Euro fell over a quarter of a cent following the release of the minutes after gaining nearly 11.00% since the start of the year.

EURUSD is mounting a modest pullback in Friday morning trade, with the pair currently hovering around 1.1730.

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China New Home Price Growth Cools


The appreciation in Chinese new home prices tapered in July, adding to signs that the real estate market is gradually cooling. Data from the National Bureau of Statistics released early on Friday revealed that the cost of new housing in 70 major Chinese cities grew 9.70% year-over-year last month.

The reading marked the eighth consecutive month of deceleration as well as the slowest pace of growth since August of 2016. Price growth was also notably weaker on a monthly basis, rising just 0.40% in July compared to a 0.70% gain in June.

A rampant property market boom since late 2015 prompted Chinese regulators to impose a series of curbs on lending and purchases to deflate the housing bubble and contain the accompanying financial risks.

After falling the last two sessions, USDCNH has erased the previous day’s losses, trending near 6.6860.

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UK Reports Tepid Retail Activity


In another indication that high inflation is might weigh on economic growth, UK retail sales only experienced a modest increase in July following a significant revision lower for the prior month’s results.

On a monthly basis, sales grew 0.30%, slightly below the 0.40% forecast by economists polled by the Wall Street Journal. The June sales pace was revised down from the original 0.60% to just 0.30%. In annual terms, retail sales rose by 1.30%, also shy of market expectations for a 1.70% increase.

Rising inflation has eroded British disposable income, with a decline in Sterling in the wake of last year's “Brexit” vote resulting in the weakest first quarter retail sales activity since 2010.

EURGBP is trading within a narrow range early Friday, with the pair flat on the session near 0.9110.

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