US Equities Extend Recent Slide

Daily Analysis - 04/04/2017

Rising Political Risks Combined With Poor Auto Sales Sink Stocks

US stock index futures are trading well off the highs of the session on the back of a spate of weak auto numbers with Ford, Fiat Chrysler and General Motors all reporting declining sales figures. Adding to the sense of market insecurity has been the growing tensions with North Korea as talks between the US and China expected to cover these developments kick off later in the week.

Trump – Xi Faceoff Approaches

Wall Street is bracing itself ahead of a summit level meeting between US President Donald Trump and Chinese President Xi Jinping in Palm Beach, Florida on Thursday and Friday. The two leaders are expected to discuss a host of topics, but trade and North Korea will be at the top of the list. Investors fear that any complications in the meeting could reignite risk aversion, which in turn will pressure equity markets, while bolstering demand for safe-haven assets.

Adding to the worsening sentiment was the disappointing auto sales figures which extended declines for a third straight month despite record levels of incentives for buyers. However, offsetting these concerns is the US corporate earnings season around the corner with Wall Street largely projecting solid profit growth. Dow Jones futures are almost -3.00% below the March highs, with every attempt to rally seeing sellers enter, as the benchmark edges below 20550.

Australia Leaves Rates Unchanged

In a widely-anticipated decision, the Reserve Bank of Australia left its benchmark interest rate on hold at a record low 1.50% for the eighth straight month, as it remains torn between a faltering economy and a surging property market. The decision was in-line with expectations, with all 50 economists polled by Reuters forecasting no change. Soaring home prices across the country's Southeast at a time when growth, jobs, inflation and wages remain subdued is the key challenge currently facing the RBA.

Already inflated property prices make it difficult for the Central Bank to slash interest rates further, fearing it might stoke further demand, while the tepid growth and softer inflation dictate that a rate hike is economically risky. After sliding on Monday, AUDUSD remains on the retreat and is currently hovering around 0.7560.

Crude Futures Pull Back on OPEC Compliance

Crude oil prices are down in early Tuesday trade as a resumption of production in Libya’s biggest oil field more than offset OPEC’s optimism about output cuts. OPEC Secretary General Mohammad Barkindo remarked on Sunday the oil market was already “rebalancing.” However, the effects of those curbs are being mitigated by a jump in US supply and production, with data released Friday showing the number of active US oil rigs jumping to the highest level since September of 2015.

Furthermore, reports of OPEC compliance dipping below 90.00% after record adherence to output quotas are raising concerns about the future of the cartel. Brent reversed from the strong resistance around $53.70 and could continue to fall to $52.50, which is the next key support zone. Brent was last seen trading just above the $53.00 a barrel-mark.

Canada Manufacturing Grows

The pace of growth in Canada’s manufacturing sector increased in March for the sixth consecutive month amidst a pick-up in production and new orders, while employment hit its highest in almost five years. The Markit Manufacturing Purchasing Managers' Index, a leading measure of manufacturing conditions in the country, rose to a seasonally adjusted 55.5 in March from 54.7 in February. The 50 threshold is what separates PMI expansion from contraction.

The latest readings further confirmed that view that the economy had a strong start to the year after better-than-anticipated growth in January raised hopes for solid first quarter results. In the meantime, USDCAD remains in a short-term downward trend that began earlier last month, but is gradually approaching a reversal point with the pair currently trending just above the 1.3400 level.