Europe To Power Higher Despite Cooling US-China Relations

European bourses are looking to extend gains for a third straight session

Trade War (2)

European bourses are looking to extend gains for a third straight session on Thursday as optimism over the reopening of economies once again overshadows rising tensions between the US and China over Hong Kong.

Last night, Washington took steps towards potentially removing the city’s special trade status. US Secretary of State Mike Pompeo said that the US no longer views Hong Kong as autonomous from mainland China. This has been the most serious response from the Trump administration over China’s crackdown on civil liberties in the financial hub. 

The backdrop of cooling relations between US and China could limit gains, but we are not seeing that here is Europe at the moment. Instead stocks are bounding higher on the expectations that consumers will be coming out of lock down with an increased desire to spend, making up for those months stuck at home. This rally does of course assume that consumers will feel financially confident to continue spending. 

EC’s rescue fund
The European Commission’s announced rescue fund is also going some way to boost sentiment on the continent. The fund will include €500 billion raised on the bond market. Given the size of the crisis that is hitting the region, the sums involved are small. However. it is the move towards financial integration that is being cheered by investors. This marks a clear turning point in policy. 

Day ahead
Looking ahead, US data releases will be in focus, with Q1 GDP, US Durable goods and jobless claims taking centre stage. The numbers are expected to be dire, with Q1 GDP to confirm -4.8% contraction on annualised basis, and Durable goods to decline by a record -19%. Worryingly initial jobless claims are expected to remain over 2 million. There will also be a growing focus on continuing claims for signs of rehiring as states ease lockdown measures to reopen the economies.

Oil drops on larger than expected stockpiles
Whilst European futures are charging higher and US futures to a lesser extent, oil markets are extending yesterday’s steep losses. Hopes of a smooth recovery for oil from the coronavirus lockdown were dashed after oil inventories rose by more than expected.

Data from API revealed that inventories rose by 8.7 million barrels compared to expectations of a 1.9-million-barrel draw. Gasoline stocks also rose by 10 times what analysts had been expecting. These are big misses and show that whilst demand is on the road to recovery, it will be a very rocky road and is still some way off from sustaining prices.

The worse than feared US oil stockpiles added to growing nerves over Russia’s commitment to deep oil production cuts ahead of June 9th OPEC+ meeting. The last thing the oil market needs right now is another standoff between Russia and Saudi Arabia. It was the straw that broke the camel’s back in March and with demand still so fragile any further signs of Russia not being onboard with supply cuts could see oil quickly break through support at $30 per barrel.
WTI shed 4% in the previous session and is down 3% at the time of writing.  

Oil levels to watch
WTI’s rally look s like it is stalling. The stock trades below its 20& 50 sma on 4 hrs chart. 
Immediate support can be seen at $31.16 (today’s low) prior to $30 psychological level and $25.80 (low 14th May).
Resistance can be seen as $32.70 (50 sma) and $33.50 (20 sma) prior to $34.70 (high 26th May)

More from Indices


This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.