Global stocks decline as China threatens rare earth export ban
Global stocks declined as traders continued to worry about the future of trade. The decline accelerated after it was revealed that China was considering using rare earth as leverage on its trade conflict with the US. Rare earth are special metals used in the manufacture of magnets and other high-tech products. China is the biggest exporter. In response, Germany’s DAX, UK’s FTSE, and Stoxx 50 declined by 158, 95, and 50 points respectively. In Asia, the Nikkei, Hang Seng, and Kospi declined by 260, 155, and 25 points respectively. In the US, Dow and S&P 500 futures declined by 165 and 15 points respectively. In the US, Treasuries continued to decline, with the 10-year declining to 2.228% from yesterday’s 2.268%. This was the lowest level since September 2017.
The euro declined today after Europe released a set of mixed economic data. In Germany, the unemployment rate rose to 5% from the previous 4.9%. This was the first increase in the unemployment rate in the past five years. The 4.9% unemployment rate was the lowest since 1991. In the month, 60K people were considered unemployed, which was the largest increase in a decade. This was partly attributed to the reclassification of some workers. In Italy, the business confidence rose to 102.0 in May, which was higher than the expected 100.4.
The price of crude oil declined sharply today. This was partly because of the deterioration of the trade climate around the world. It was also partly because traders are worried about US stockpiles, which are climbing at their quickest pace since 2016. The pace of increases in inventories has surprised many oil watchers because they tend to fall at this time of the year as fuel makers take more crude ahead of the summer driving season. In recent weeks, there have been a number of refinery outages, maintenance, and flooding that has led to lower demand in the US. Overnight, API will release the inventory data that is expected to show a rise in inventories. Tomorrow, data from EIA is expected to show that the inventories declined by 800K barrels.
The EUR/USD pair started declining yesterday after reaching a high of 1.1215. Today, the pair reached a low of 1.1147. On the hourly chart below, this price is slightly under the 25-day and 50-day moving averages. The price is also along the lower line of the Bollinger Bands. The momentum indicator remains below the 100 level. The pair is likely to continue declining to test the important support of 1.1120.
The XBR/USD pair declined to a low of 66.65. This was an extension of the losses started on Monday when the pair reached a high of 69.17. On the hourly chart below, the pair seems headed towards the 65.99 level, which is the lowest level since April. If it retests this low, the pair will have made a double bottom pattern, which means that it could extend the losses. On the chart, this price is along the lower line of the Bollinger Bands and the RSI has reached the oversold level.
The USD/CAD pair continued to rally ahead of the Bank of Canada decision expected later today. The pair is now trading at 1.3490, which is above the short and medium-term moving averages. The Average True Range (ATR) indicator has declined sharply while the ultimate oscillator is rising. Though the pair could continue moving higher, this could change after the BOC delivers its interest rates decision.