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Trade Agreements, Bitcoin, Economic Data and Higher Crude - What's Moving Markets

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By Peter Nurse

Investing.com — The U.S. and EU end dispute over aircraft subsidies, while the U.K. and Australia sign a trade agreement. Bitcoin climbs above $40,000, crude continues to rise while there are a lot of economic data scheduled as the Federal Reserve starts its latest two-day meeting. Here's what's moving markets on Tuesday, June 15th.

1. Trade agreements

It may have taken the threat of China eating into their markets, but the U.S. and the European Union have finally agreed to end their 17-year dispute over aircraft subsidies to Airbus and Boeing.

The deal sets the stage for a new era of transatlantic cooperation over state aid at a time when China is vying to displace the Boeing-Airbus civil aircraft duopoly, with the state-sponsored aerospace manufacturer Commercial Aircraft Corp. of China, or Comac, on track to become a legitimate rival in global planemaking by the end of the decade.

By 6:30 AM ET (0930 GMT), Airbus (PA:AIR) stock rose 1.3%, bringing the gain this year to 26%. Boeing (NYSE:BA) stock, which is up almost 15% year-to-date, was up 1% ahead of the U.S. market open.

In 2019, the World Trade Organization authorized the U.S. to level tariffs against $7.5 billion of EU exports annually over government support for Airbus, while the EU won permission to hit back with levies on $4 billion of U.S. goods.

This spirit of bonhomie continued Tuesday as Britain and Australia have agreed a trade deal, Australian Minister for Trade Dan Tehan said on Tuesday, with the agreement being Britain's first trade deal since Brexit.

Britain is Australia's eighth-largest trading partner, with two-way trade worth A$26.9 billion ($20.7 billion). Prior to Britain joining the then European common market in 1973, Britain was Australia's most lucrative trading market.

The deal will be keenly scrutinized in particular by British farmers, who fear they could be forced out of business if the deal eliminates tariffs on lamb and beef imports from Australia.

2. Stocks seen just higher; Oracle earnings due

U.S. stocks are seen opening marginally higher Tuesday, in lackluster trading ahead of the start of the Federal Reserve’s latest two-day policy meeting.

By 6:30 AM ET, Dow Jones futures were up 20 points, or 0.1%, S&P 500 futures were 0.1% higher and Nasdaq 100 futures climbed 0.1%.

The broad-based S&P 500 and the tech-heavy Nasdaq Composite closed at fresh record highs Monday, gaining 0.2% and 0.7% respectively, while the blue-chip Dow Jones Industrial Average dropped 0.3%.

The Federal Reserve’s two-day policy meeting starts later Tuesday, and while the central bank is not expected to take any action this time round it could hint at its future tapering plans given the recent surge in consumer prices.

“The Fed will likely be forced into debating moderate overshooting of the inflation target but it still seems as if the market discards big directional surprises to the inflation outlook. The Fed will not be convinced of sustained pressure in June,” said analysts at Nordea, in a research note.

In corporate news, Oracle (NYSE:ORCL) will be in the spotlight, with the tech company seen posting earnings per share of $1.31 on revenue of $11.02 billion for the fourth quarter ended May 31.

Southwest Airlines (NYSE:LUV) will also be in focus after the airline began resuming flight operations across the United States late on Monday after they had been delayed for hours over a technical glitch in a weather information system.

3. Data dump

A lot of attention is going to be on the start of the two-day Federal Reserve meeting, but there’s also a lot of important economic data to study Tuesday.

The Fed has repeatedly said that near-term price spikes will not translate into lasting inflation, but prices paid by companies to producers are expected to continue rising, jumping by 0.6% in May from the levels in April, matching the increase from the prior month, when released at 8:30 AM ET.

Year-over-year, the PPI is expected to have spiked by 6.3%, the largest increase since the agency started tracking the data in 2010. It had jumped 6.2% on a yearly basis in April.

At the same time, core retail sales in May, a number that excludes automobiles, are seen rising 0.2% from the prior month. They had contracted by 0.8% in April. Overall, retail sales are expected to dip 0.7% for the month after being flat previously. 

Industrial production data, due 45 minutes later, will be closely watched amid issues over supply constraints and labor market shortages. 

Earlier Tuesday, the U.K. jobs market strengthened for a sixth month in May as the economy took a further stride out of the coronavirus lockdown.

British companies increased their number of employees by 197,000 in May, the biggest single-month increase since records began in July 2014. The figures also showed the fastest headline wage growth since 2007 in the year to April.

4. Bitcoin breaks through $40,000

Bitcoin, the world’s largest cryptocurrency by market capitalization, is on the rise again, pushing over the $40,000 mark for the first time since late May.

The main source for this new push higher is a familiar one, Elon Musk. The Tesla (NASDAQ:TSLA) boss suggested over the weekend that the electric car manufacturer could start using the digital currency as payment once more just a few weeks after ruling it out because of its allegedly unsuitable energy usage involved in mining.

At 6:30 AM ET, Bitcoin was up 3% at $40,182.00, recovering and breaking out of its recent trading range, having collapsed from a record peak of almost $65,000 in April.

However, Bitcoin does have other things going for it. 

In an official statement on Monday, MicroStrategy (NASDAQ:MSTR) disclosed that it had completed the sales of secured notes due 2028, raising approximately $488 million, all of which the business intelligence company will use to acquire more Bitcoin.

Institutional investors were keen on the offer, with MicroStrategy reportedly receiving more than $1.5 billion in orders, while its shares surged by over 15% following the announcement, suggesting investors are still bullish on the future of Bitcoin despite the recent market correction.

Adding to the bullish sentiment, and fresh on the back of El Salvador announcing its adoption of Bitcoin as legal tender, the president of Tanzania Samia Suluhu Hassan told the East African nation’s financial chiefs to prepare for the wider adoption of cryptocurrency around the world, while the Texas Department of Banking issued a notice last week confirming that state-chartered banks could hold Bitcoin.

At the same time, Bitcoin is being improved, with the first upgrade in four years having just been approved by miners around the world. 

The upgrade is called Taproot, and it’s due to take effect in November. It should result in greater transaction privacy and efficiency, and crucially, it will unlock the potential for smart contracts, a key feature of its blockchain technology which eliminates middlemen from even the most complex transactions. 

Bitcoin still has its doubters - Bank of England Governor Andrew Bailey among them, as he highlighted their high volatility in a speech on Monday, saying this rules them out as a reliable method of payment - but it looks like the digital currency’s supporters are in the ascendancy at the moment.

5. Crude remains strong; Iranian election in view

Crude oil prices headed higher Tuesday, remaining near multi-year highs, as the immediate threat of additional supply from Iran returning to the market dwindled.

By 6:30 AM ET, U.S. crude was up 0.4% at $71.15 a barrel, not far below the highest level since October 2018, while Brent was up 0.3% at $73.10, around its highest since May 2019. 

Crude markets have posted gains of over 40% this year to date as ramped-up vaccinations programs allowed many western countries to cast off their Covid-19 restrictions, resulting in a recovery in the global economy.

The International Energy Agency predicted last week that global oil demand will recover to pre-pandemic levels late next year.

However, a factor weighing on the market has been the discussions between Iran and world powers, including the U.S., to revive a 2015 nuclear deal. If a deal is reached, the U.S. could lift sanctions on Iran that would allow the Persian Gulf country to resume crude exports, potentially adding up to two million barrels of crude a day to the global market.

That said, it is "looking increasingly unlikely that we will see the U.S. rejoin the Iranian nuclear deal before the Iranian presidential elections later this week," analysts at ING said in a note.

These elections take place on Friday, and the front-runner is Ebrahim Raisi, an implacable critic of the West who was sanctioned by the United States in 2019 for human rights violations.

Raisi, along with all the other candidates, backs the talks between Iran and world powers to revive the 2015 nuclear deal and thus remove sanctions. However, it’s difficult to see the U.S., and the other western powers, for that matter, reacting too favorably to his election.

 

 

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