Wall Street higher on US-Mexico deal hopes

Summary:

• Wall Street finished Thursday’s trading broadly higher, Asian stock markets try to follow 
• US and Mexico have reportedly made some progress in negotiations, a possible tariffs delay on the cards
• Oil prices rally on the back of hopes that the US could hold off on slapping tariffs on Mexico

Lack of consistency

The US stock market was able to resist broad-based weakness seen across European indices and closed the day with some gains. The NASDAQ (US100) added 0.7%, the SP500 (US500) jumped 0.6% and the Dow Jones (US30) finished trading with a 0.5% gain. Overall, the better performance of US equities has come earlier this week following a speech given by Federal Reserve Chairman Jerome Powell who reiterated the US central bank stood ready to support the economy if needed. On the other hand, the European Central Bank chose to backtrack a bit from this course signalling on Thursday that interest rates will become unchanged at least through the end of the first half of 2020. This was an extension of its forward guidance calling previously for unchanged rates through the end of the first quarter. In part, this could have been a reason behind underperformance of Europe’s equities. The last trading day in Asian markets has been quite successful thus far. With Chinese equities being closed for a holiday, the Japanese NIKKEI (JAP225) is gaining 0.6% and the Australian major index (AUS200) is up 0.7%.

Taking a closer look at the US500 one may arrive at a conclusion that the bull market is on again. The price smashed the resistance placed nearby 2800 points a few days ago and has continued climbing since then. From a pure technical standpoint one may suppose that the ongoing upward move could be extended even up to 2950 points. On the other hand, a lot will depend on what the Fed does in two weeks. If it fails to deliver a dovish message, it could be a brutal end of a Powell’s put. Source: xStation5

Delay of tariffs possible

On Thursday, there was a second day of US-Mexico negotiations regarding an immigration issue and possible US duties on all imports from Mexico. Although no official agreement has been announced as of yet, both sides said that progress is the talks has been made. Meanwhile, US Vice President Mike Pence said that the US still plans to implement tariffs on its southern neighbor as soon as next week. Somewhat reassuring comments came also from Mexican foreign minister Ebrard who said that Friday would be another day of conversations and it could be one of the last sessions in order to make an effort to have an agreement. There is no doubt that the US has given short time to Mexico to resolve the mentioned immigration problem and it seems that Washington is aware of it. Therefore, some speculations have occurred that the US may postpone the date when tariffs on Mexico come into effect so as to offer more time to hammer out a deal. These rumours helped both US equities and oil prices in late trading on Thursday. The latter is climbing ca. 1.4% in the morning.

Brent oil prices are recovering this morning on the back of hopes that US duties on Mexico will not come into effect on Monday. The price is bouncing off the important support area and it could see an extended pick-up toward $69. Source: xStation5

In the other news:

• Volume of New Zealand buildings climbed 6.2% QoQ, above the consensus of a 1.1% QoQ increase

• Japanese household spending rose 1.3% YoY in April, below expectations calling for a 2.6% YoY rise; nominal labour cash earnings fell 0.1% YoY, above the consensus of a 0.7% YoY decline

• Swiss unemployment rate (SA) stayed at 2.4%

• German industrial production fell 1.9% MoM in April, below the consensus of a 0.5% MoM decrease