Stocks Point to Positive Start Despite U.S.-China Tensions

05/27/2020 9:28 am EST

Focus: GLOBAL

Fiona Cincotta

MarketAnalyst, Currency Live

Global markets are looking positive going into Wednesday’s open, reports Fiona Cincotta.

Asian shares slipped lower overnight, although European futures are holding onto positive ground as U.S.-Chinese relations return to the spotlight, threatening to overshadow optimism surrounding the global economic recovery as lockdown measures ease.

President Trump has promised a response by the end of the week to China’s manhandling of Hong Kong’s law and more broadly its crack down on liberties in the financial hub. In turn, China has threatened countermeasures against the United States in the latest showing of escalating tensions between the two powers. The overriding concern here is that the cooling relations between the two largest economies could hamper the post Coronavirus economic recovery.

Chinese factory profits fall less

Chinese data overnight is going some way to boost optimism. Profits at Chinese factories fell at a slower pace in April, aided by a pick-up in automobiles and electronics. Factory profits slipped by -4.3% in April, a huge improvement from March’s 35% decline.

These are tentative signs that China is reigniting its engine and demand is slower returning. However, no quick bounce back is expected here. The damage caused by Covid-19 to the economy is expected to keep the economy and businesses under pressure for the rest of the year.

Inovio joins vaccine progress list

Vaccine news continues to offer support to sentiment. Inovio Pharmaceuticals Inc. (INO) has become the latest to join the list of firms reporting progress in its efforts to find a vaccine for Covid-19. Inovio joins Novavax Inc. (NVAX), Moderna Inc. (MRNA), Oxford University and others which are progressing towards a vaccine.

Dollar hints at rebound

The mixed picture painted from vaccine optimism, cautiously encouraging Chinese data and concerns over U.S. -Chinese tensions is setting the scene for a mixed session. European and U.S. futures are pointing to a mildly stronger start on the open. The U.S. Dollar Index is pulling safe have bids, the traditional safe haven gold is slipping lower for a third straight session, finding support at $1,700.

Oil fails to break $35

Crude oil is also pulling lower on Wednesday, after gaining just shy of 4.5% across the past two sessions, although failing to test resistance at $35. WTI is currently down 0.7% highlighting the fragility of its recovery.

The United States is heading into peak demand season just as states are easing lock down restrictions and reopening. New York is expected to reopen in June. Even so, demand across the year is expected to be down around 30% as people stay close to home. Souring U.S.-Chinese relations are also bringing a negative tone to oil trading.

 FTSE levels

The FTSE is set to open 0.7% higher on the open around 6110. That would put it above its 20- and 50-period simple moving averages on four-hour chart, a bullish sign. Support can be seen at 6045 (overnight low) and 5890 and 5660. Resistance can be seen at 6168 (Monday’s high), 6210 and 6459 (see chart).

FTSE levels

 Fiona Cincotta is a MarketAnalyst for Currency Live

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