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Major US stock indexes have risen significantly, as reports that the United States temporarily eased restrictions on the Chinese company Huawei, somewhat reduced investor concerns about the further escalation of the trade war between the two largest economies in the world.

On Monday evening, the US government temporarily relaxed some trade restrictions imposed on Chinese Huawei Technologies last week to minimize disruptions to telecommunications company clients around the world. The US Department of Commerce said it would allow Huawei to purchase American-made goods to maintain existing networks and update software for existing Huawei phones until August 19. Against this background, stocks of semiconductor manufacturers, which suffered significant losses on Monday, recorded a noticeable increase.

Investors also analyzed quarterly reports from several retailers that were disappointing. On the contrary, the market was supported by Boeing (BA) shares, which rose 1.56% after the publication of The Wall Street Journal reported that a collision with birds could have caused the 737 Max plane crash in March.

At the same time, investors did not pay attention to the disappointing data on the housing market. According to a report by the National Association of Realtors (NAR), sales of homes on the secondary market fell by 0.4% to an annual level of 5.19 million in April after a decrease of 4.9% to 5.21 million in March. Economists had expected home sales to grow by 2.7%, to 5.35 million.

Almost all the components of DOW finished trading in positive territory (25 out of 30). The growth leader was Apple Inc. (AAPL; + 2.14%). Outsiders were The Procter & Gamble Company (PG; -0.75%).

All sectors of the S & P recorded an increase. The industrial goods sector grew the most (+ 1.2%).

At the time of closing:

Dow 25,867.13 +187.23 +0.73%

S & P 500 2,866.04 +25.81 +0.91%

Nasdaq 100 7,792.04 +89.66 +1.16%

Erik Johannes Bruce, an analyst at Nordea Markets, notes the Norges Bank removed the last doubt about the June hike at the last MPC meeting.

• The question at the June meeting will be how the new rate path will be and when to expect the next hike. It is easy to argue for the next hike to be in September given the current combination of weaker NOK and higher oil prices. However, Norges Bank has clearly indicated that it will move slower than its normal reaction function dictates.
• For now, we think it will prefer to signal the next hike in December and raise the path in 2020, indicating two hikes in 2020 in contrast to only one in the current rate path.
• But it is a close call and next week’s data could influence the rate path, especially the Q2 oil investment survey (28. May) and the May registered unemployment (31. May).
• Retail sales (29. May) is too volatile to have much influence on Norges Bank’s view. The figure for total consumption published 7. June will be more important.

The European Commission reported its flash estimate showed the consumer confidence indicator for the Eurozone increased 0.8 points to -6.5 in May from the previous month.

Economists had expected the index to come in at -7.7.

Considering the European Union (EU) as a whole, consumer sentiment improved 1.1 points to -6.2.

Given these gains, both indicators are well above their respective long-term averages of -10.7 (Eurozone) and -10.0 (EU), the report said.

The National Association of Realtors (NAR) announced on Tuesday that the U.S. existing home sales fell 0.4 percent to a seasonally adjusted rate of 5.19 million in April from an unrevised 5.21 million in March.

Economists had forecast home resales increasing to a 5.35 million-unit pace last month.

According to the report, single-family home sales stood at a seasonally adjusted annual rate of 4.62 million in April, down from 4.67 million in March and down 4.0 percent from 4.81 million a year ago. Meanwhile, existing condominium and co-op sales were recorded at a seasonally-adjusted annual rate of 570,000 units in April, up 5.6% from the prior month and down 8.1 percent from a year ago.

In y-o-y terms, existing-home sales dropped 4.4 percent in April.

The NAR’s chief economist Lawrence Yun said he is not overly concerned about the 0.4% dip in sales and expects moderate growth very soon. “First, we are seeing historically low mortgage rates combined with a pent-up demand to buy, so buyers will look to take advantage of these conditions,” he noted. “Also, job creation is improving, causing wage growth to align with home price growth, which helps affordability and will help spur more home sales.”

Analysts at TD Securities are expecting the Canadian retail sales to build on recent gains with a 1.4% increase in March, reflecting broad strength in household goods consumption.

• Gasoline stations and motor vehicle sales should lead the move, with the former benefitting from a 10% m/m increase in the price at the pump. This will allow the ex. autos measure to come in near the headline print at 1.3%, although sales should see more modest gains (0.8%) when excluding gasoline as well.
• Core retail sales rose by 0.4% in February for their first increase since September and we expect this performance to continue into March on the heels of a sharp increase in consumer goods imports and strong labour market data.
• Real retail sales should underperform the headline print owing to the sharp increase in gasoline prices although we still expect to see an increase of roughly 0.8% m/m. This is consistent with a flat print on Q1 after soft data in Jan/Feb which may reignite concerns about the Canadian consumer after an abysmal Q4, but it will provide a solid handoff to Q2.

• Raises probability of Article 50 extension to 60% versus 50%
• Cuts probability of exit on withdrawal agreement to 15% from 35%
• Says its base case is that Boris Johnson become PM, and he calls a general election, followed by a new delay to Brexit to the end of December

U.S. stock-index futures rose on Tuesday, as investors reacted positively to the reports the United States temporarily eased restrictions on China’s Huawei Technologies, allaying concerns over a further escalation in a bitter trade war between the world's two largest economies.

Global Stocks:

(company / ticker / price / change ($/%) / volume)

Uber (UBER) initiated with an Equal Weight at Consumer Edge Research

• PM May will set out a new proposal for her deal in speech at 15:00 GMT
• Cabinet earlier discussed a new deal that is to be presented in parliament
• New deal includes alternative arrangements, assurances on UK integrity in the event that the backstop is triggered
• Haven’t set out a timetable for indicative votes so far
  
• No-deal remains a plausible outcome and work is ongoing

• Inflation is not so far away from target that expectations are becoming unanchored
• Lack of wage pressures suggests natural rate of unemployment may be lower than previously thought
• Says that he agrees with Powell on financial risks, noting that business debt risks have risen but not at crisis levels

Kohl's (KSS) reported Q1 FY 2020 earnings of $0.61 per share (versus $0.64 in Q1 FY 2019), missing analysts’ consensus of $0.67.

The company’s quarterly revenues amounted to $3.821 bln (-3.3% y/y), missing analysts’ consensus estimate of $3.972 bln.

The company also issued downside guidance for FY 2020, projecting EPS of $5.15-5.45 versus analysts’ consensus estimate of $6.04

KSS fell to $56.53 (-10.14%) in pre-market trading.

Home Depot (HD) reported Q1 FY 2020 earnings of $2.27 per share (versus $2.08 in Q1 FY 2019), beating analysts’ consensus of $2.19.

The company’s quarterly revenues amounted to $26.381 bln (+5.7% y/y), generally in line with analysts’ consensus estimate of $26.339 bln.

The company issued guidance for FY 2020, projecting EPS of ~$10.03 (versus analysts’ consensus estimate of $10.08) and revenues of +3.3% y/y to ~$111.8 bln (versus analysts’ consensus estimate of $111.46 bln).

HD fell to $190.45 (-0.26%) in pre-market trading.

Robert Carnell the Chief Economist and Head of Research for Asia-Pacific at ING, notes the Reserve Bank of Australia’s (RBA) governor Philip Lowe said in his speech to the Queensland branch of the Economic Society of Australia that the central bank would discuss rate cuts at their next meeting. 

• We penciled in two 25bp rate cuts by the RBA this year at our last forecast update, following on from the very weak 1Q19 inflation figures (1.3%YoY). RBA Governor, Lowe seems to agree, noting at his speech on Tuesday that inflation would not likely reach its 2-3% target range without further falls in the unemployment rate, and that achieving this would be easier with some additional monetary support.  "Given this assessment, at our meeting in two weeks time, we will consider the case for lower interest rates".
• Why twp 25bp cuts? Well, if the argument is strong enough for one, then we figure it is probably strong enough for at least two. There are some in the market now calling for a total of 100bp of easing, though we don't believe things have come to that just yet. 
• Our 2Q19 forecast of AUD/USD 0.69  has already been achieved, and now exceeded, with the AUD trading below 0.69 today. We clearly have to re-look at that forecast with a view to a lower trough should we get the two rate cuts we now expect. That said, markets are already aggressively pricing easing, so the additional AUD weakening may not be substantial. 

Bill Diviney, the senior economist at ABN AMRO, notes that Japan’s Q1 GDP surprised to the upside at 2.1% qoq annualized, well above consensus (-0.2%) and their (0.5%) expectations, but the details paint a far less rosy picture of the economy.

• Both private consumption and business fixed investment fell on the quarter, each subtracting 0.2pp from annualized growth. At the same time, the main positive contributions came from net exports (+1.5pp) and inventories (+0.6pp). However, exports actually plunged -9.4% on the quarter, and the only reason for the positive trade contribution is that imports fell at a much faster pace, by -17.2%.
• Similar to other regions, the strength in Q1 looks unsustainable. The story of unusual net export and/or inventory build contributions is consistent with what we have seen in some other advanced economies, notably the US and the UK, and suggests the current strength in global growth is unsustainable.

The latest survey by the Confederation of British Industry (CBI) showed on Tuesday the UK manufacturers’ order books declined in May.

According to the report, the CBI's monthly factory order book balance dropped to -10 in May from -5 in the previous month. That was the lowest reading since October 2016. Economists had expected the reading to remain unchanged m-o-m. 

According to the report, stocks of finished goods were the highest since May 2009, following the recent rush to stockpile ahead of the original March 2019 deadline, while export orders (-16) declined at the fastest rate since July 2016.

With euro zone growth slowing, several countries should force their banks to build extra capital buffers to mitigate the risk of unexpected shocks, European Central Bank Vice President Luis de Guindos said on Tuesday.

"The slower growth momentum we are seeing increases the risk of tail events, in other words, shocks that are unlikely to occur, but would have a significant impact on the financial system and the economy if they did. The continued build-up of buffers could therefore be justified, especially in those countries where the long upturn may have led to an underestimation of credit risk or where private indebtedness is particularly high or rising," de Guindos told.

Economic growth in China and the United States could be 0.2-0.3% lower on average by 2021 and 2022 if the two countries do not row back on tit-for-tat tariffs in their dispute that has dampened the global economic outlook, the OECD said on Tuesday.

The global economy would grow by only 3.2% this year as growth in trade flows is nearly halved this year to only 2.1%, the Organisation for Economic Cooperation and Development (OECD) said in its biannual Economic Outlook.

That would be the slowest pace of global economic growth since 2016 and was down marginally from the Paris-based policy forum's last forecast in March for growth of 3.3%.

The world economy should fare slightly better next year with a growth rate of 3.4%, but only if the United States and China pull back from tariff hikes announced this month.

The OECD said growth in China and the United States could come in 0.2-0.3% lower on average by 2021 and 2022 if the two nations did not reverse course.

Danske Bank analysts suggest that in light of another day of only tier-2 data releases, political headlines - be it the US-China trade spat or Brexit - will remain in focus today.

“In the UK, PM Theresa May will convene a cabinet meeting today to consider how to respond to the collapse of the cross-party talks with Labour. In the Euro area, consumer confidence data for May is on the agenda. Domestic demand, especially private consumption, was an important growth driver in Q1 as consumer sentiment recovered some ground after the H2 18 weakness. We will look for any signs that this trend might go into reverse amid the latest trade war escalation. Central bankers will also be on the wires today, with ECB Vice President De Guindos speaking in London and the Fed's Evans and Rosengren discussing the economy and monetary policy.”

Karen Jones, analyst at Commerzbank, suggests that GBP/USD pair remains on the defensive and attention is on the August, October and mid-January lows at 1.2696/62.

“We note the oversold daily RSI and the TD perfected set up on the daily – both of which suggest the 78.6% retracement at 1.2644 will hold. Minor resistance comes in at the 1.2865 April low. Immediate downside pressure will be maintained while no rise above the 200 day moving average at 1.2956 is seen. Next up is the May 10 high at 1.3048. Only if this level were to be exceeded, would we look for the 1.3185/97 April and current May highs as well as the 61.8% Fibonacci retracement to be retested. This currently looks unlikely.”

Lan Shen, economist at Standard Chartered, points out that their latest SMEI survey indicates a further softening in China’s SMEs’ performance in May following ‘green shoots’ in Q1 this year.

“The headline SMEI – based on our monthly survey of more than 500 SMEs nationwide in China – eased to 54.7 in May from 56.8 in April and 57.1 in March. The growth momentum indicator (new orders less finished-goods inventories) moderated for a second straight month in May. The ‘current performance’ and ‘expectations’ sub-indices retreated synchronously in May, for the first time since the start of the year, reflecting headwinds to growth momentum. Both domestic and external demand weakened, weighing on production activity. Prices remained largely contained, constraining profitability. SMEs’ credit conditions remained largely stable in May, though they did not improve further. Expectations of Chinese yuan (CNY) weakening against the USD rose again in May on trade concerns, but were under control compared to Q3-2018, when the US announced the first batch of tariffs.”

Japan’s automakers’ lobby said on Tuesday it was dismayed by President Trump’s declaration that some imported vehicles and parts posed a threat to U.S. national security, as the industry braces for a possible rise in U.S. tariffs.

Trump made the unprecedented designation of foreign vehicles on Friday but delayed for up to six months a decision on whether to impose tariffs to allow for more time for trade talks with Japan and the European Union.

“We are dismayed to hear a message suggesting that our long-time contributions of investment and employment in the United States are not welcomed,” said Akio Toyoda, chairman of the Japan Automobile Manufacturers Association.

“As chairman, I am deeply saddened by this decision,” Toyoda, president of Toyota Motor Corp, said in a statement.

Most of Japan’s major automakers operate plants in the United States. At least half of the cars and trucks sold in the country by Japan’s top three carmakers are made in the United States.

In view of Karen Jones, analyst at Commerzbank, EUR/USD pair has recently failed at the 55 day moving average at 1.1241 and remains on the defensive.

“While we remain unable to rule out a test of the 1.1110 April low, we look for this to hold. We note the 13 count on the 60 minute chart but suspect that we need to regain 1.1200 in order to alleviate immediate downside pressure. Be advised that as long as 1.1110 holds, though, the pattern being traced out is a potential large bullish reversal pattern. Overhead lie the 55- and 100-day moving averages at 1.1241 and 1.1304 as well as the September-to-May resistance line at 1.1321. Further up meanders the 200 day moving average at 1.1391. Support at 1.1110 is regarded as the break down point to the 2018-2019 support line at 1.1096 and the 1.0814 78.6% Fibonacci retracement.”

British companies are likely to cancel projects that they have put on hold because of Brexit uncertainty if the country leaves the European Union without a deal to smooth the shock, Bank of England Deputy Governor Ben Broadbent said.

Business investment fell throughout 2018 as companies waited for clarity on the terms of Brexit and grew only slightly early this year, a situation Broadbent described as "remarkable" given the economy was still growing and company profits were high.

Some Brexit supporters have said Britain should leave the EU now with no agreement, as businesses would at least know they would have to revert to trade on World Trade Organisation terms.

But Broadbent said surveys showed companies viewed this scenario as the most negative of all. "It would be wrong to conclude ... that the best thing for investment is to resolve this uncertainty as soon as you can, by any means necessary," Broadbent said.

"Deliberately choosing the outcome firms say they view most negatively is more likely to mean that capital projects that have so far been deferred are then simply cancelled," he said.

• Says that she continues to support May's Brexit deal

• 'Actively considering' to run for Tory leadership

Analysts at ANZ point out that the New Zealand economy has been losing steam for a while now and think that this process has a little further to run.

“There are enough positive growth drivers out there to put a floor under the slowdown by year end, and support a gradual acceleration in growth thereafter. One of these bright spots is the additional monetary stimulus provided by the RBNZ when it cut the OCR in May. While lower interest rates (and the recent depreciation of the NZD) will support growth, we think a little more stimulus will be required to see inflation lift sustainably to the RBNZ’s target mid-point. We’ve pencilled in another 25bp cut for November with a follow up move in February. However, the global data has turned a bit patchy of late. A materialisation of global risks into tangible consequences (eg for commodity prices) would see us bring forward our expectation for the timing of the next OCR cut.”

Analysts at TD Securities note that the Atlanta Fed President Raphael Bostic indicated he sees no need to adjust the policy rate and that chances for an interest rate hike or cut are equally likely.

“His comments go hand-in-hand with Vice Chair Richard Clarida, who stated the US economy is operating at or close to the Fed's dual mandate objectives. These comments would suggest Fed officials are likely to maintain its policy stance unchanged for now, in contrary to market expectations of at least one rate hike this year. That said, St. Louis Fed President James Bullard noted that one of the conditions to lower rates, in his view, would be in a scenario where core inflation remains persistently below the Fed's 2% target. Core inflation is currently at 1.55% y/y but we expect it to tick above 1.6% in the April report.”

“Business debt does not present the kind of elevated risks to the stability of the financial system that would lead to broad harm to households and businesses should conditions deteriorate. At the same time, the level of debt certainly could stress borrowers if the economy weakens”, Federal Reserve Chairman Jerome Powell said at the Financial Markets Conference in Amelia Island, Florida.

The issue of corporate debt has surfaced as companies continue to use the low rates the Fed has provided to lever up their balance sheets. Particular concern has been raised about companies whose bonds are rated close to junk and would have trouble rolling over that debt should rates continue to rise.

Powell said the Fed “continues to assess the potential amplification of such stresses on borrowers” but called those risks “moderate” at this point.

His speech focused solely on risks to the financial system and did not delve into monetary policy and the Fed’s intentions regarding interest rates.

"Westpac has revised the forecast it released on February 21 that the RBA would cut the cash rate in August and November to June and August. We then expect the cash rate to remain on hold through 2020", Westpac chief economist Bill Evans said.

"This change in forecast reflects the lift in the unemployment rate for April from 5.1% to 5.2% and the confirmation from the Governor that the Board would be closely following developments in the labour  market with the primary focus on the unemployment rate. Recall that the current forecast for the unemployment rate is 5% to end 2020, (falling to 4.75% by June 2021), based on market pricing, which in the May Board Minutes is assessed as “the cash rate was expected to be lowered by 25 basis points within the next three months and again by the end of 2019”. Other aspects of the Bank’s current forecasts also are underwhelming despite the assumption around lower rates – 2.6% growth in 2019; 1.75% trimmed mean inflation in 2019; and 5% unemployment rate by end 2019. With the June rate cut virtually locked in the issue is why we expect a follow up move in August", Evans said.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1315 (4419)

$1.1278 (3031)

$1.1248 (1600)

Price at time of writing this review: $1.1156

Support levels (open interest**, contracts):

$1.1117 (5033)

$1.1081 (4013)

$1.1039 (2933)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 7 is 118607 contracts (according to data from May, 20) with the maximum number of contracts with strike price $1,1500 (9023);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3012 (1051)

$1.2926 (615)

$1.2855 (328)

Price at time of writing this review: $1.2718

Support levels (open interest**, contracts):

$1.2689 (3669)

$1.2638 (4301)

$1.2605 (1562)

Comments:

- Overall open interest on the CALL options with the expiration date June, 7 is 39407 contracts, with the maximum number of contracts with strike price $1,3450 (3278);

- Overall open interest on the PUT options with the expiration date June, 7 is 38688 contracts, with the maximum number of contracts with strike price $1,2700 (4301);

- The ratio of PUT/CALL was 0.98 versus 0.98 from the previous trading day according to data from May, 20

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.