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Major US stock indexes fell moderately, as reports that Washington could impose sanctions on other Chinese companies increased trading concerns, while the fall in Qualcomm (QCOM) and retailers also had a negative impact on investor sentiment.

According to Bloomberg, the White House is considering banning five more Chinese companies from doing business with US companies without a license. This followed Washington’s decision to temporarily ease some trade restrictions imposed on China’s Huawei Technologies last week.

The South China Morning Post said that the ongoing trade war, as well as the restrictions imposed on the Chinese telecommunications giant Huawei, forced China to rethink all its economic relations with the United States. Finance Minister Stephen Mnuchin told CNBC that a trip to Beijing to resume trade negotiations has not yet been scheduled. This weakened hopes for a speedy resolution of the US-Chinese trade war.

Qualcomm shares (QCOM) collapsed by 10.86% after a US judge ruled that the chip maker violated antitrust laws, illegally suppressing mobile phone competition.

Retailers also came under pressure after the publication of quarterly results of companies in the sector. Shares of Lowe’s (LOW) fell by almost 12%, as the company's profit did not meet forecasts. The value of Nordstrom (JWN) shares, meanwhile, fell by 9.25%, as both the profit and revenue were worse than expected.

Investors also drew attention to the minutes of the last Fed meeting. At the last Fed meeting on April 30 - May 1, many of the leaders noted that they consider the current weakness of inflation as a temporary phenomenon. However, some of them expressed concern about what would happen if price pressure continued to deceive expectations, remaining low. In general, the minutes of the Fed meeting indicate that the current waiting position on interest rates is comfortable for the leadership of the central bank.

Most of the DOW components recorded a decline (18 out of 30). Outsider were shares of Apple Inc. (AAPL; -2.11%). The growth leader was the shares of The Coca-Cola Company (KO; + 2.16%).

Almost all sectors of the S & P finished trading in the red. Growth was shown only by the utility sector (+ 0.6%) and the health sector (+ 0.6%). The largest decline was shown by the conglomerate sector (-1.7%).

At the time of closing:

Dow 25,776.61 -100.72 -0.39%

S & P 500 2,856.27  -8.09 -0.28%

Nasdaq 100 7,750.84  -34.88 -0.45%

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories surged by 4.740 million barrels in the week ended May 17. Economists had forecast a decrease of 1.700 million barrels.

At the same time, gasoline stocks surged by 3.716 million barrels, while analysts had expected a drop of 0.850 million barrels. Distillate stocks rose by 0.768 million barrels, while analysts had forecast a decrease of 0.500 million barrels.

Meanwhile, oil production in the U.S. increased by 100,000 barrels a day to 12.200 million barrels a day.

U.S. crude oil imports averaged 6.9 million barrels per day last week, down by 669,000 barrels per day from the previous week.

• Some factors may have been holding down inflation
• Monetary policy is really well-positioned
• Would like to see inflation at 2% for an extended period
• We are around neutral interest rates
• Says he thinks underlying price trends point to inflation being around Feds target
• Inflationary pressures are essentially nonexistent
• Domestic drivers of the U.S. economy are strong, expects growth about 2% this year
• Some risks to global growth have receded
• U.S. economy is still a very good place

Nathan Janzen, a senior economist at Royal Bank of Canada, notes that Canadian headline sales climbed 1.1% to build on a 1.0% gain in February, although the March advance was boosted by a price-led 6% increase in sales at gasoline stations.

• Even with an increase in March, retail sale volumes were down slightly in Q1 as a whole – consistent with prior expectations for another soft quarter for consumer spending growth. Job growth has been almost unbelievably strong, supporting overall household income growth despite wage gains that are still lackluster for this point in the economic cycle.
• The intensification of the U.S.-China trade dispute has raised some grey clouds for the U.S. industrial sector and, by extension, Canada’s.  But the removal of U.S. steel and aluminum tariffs on Canada, along with Canada’s retaliatory measures, will provide some offset.  And the tick up in retail sale volumes in March follows earlier-reported bounce-backs in manufacturing sales and exports after likely weather-related drops in February.
• The data on balance is still consistent with GDP growth coming in at a sub-1% rate in Q1 but better reports later in the quarter also still leave the odds on a bounce-back to a 2% rate in Q2.

• And also to develop our trade relations advantageously overall

• Says he does not expect there will be a significant cost increase for American families due to tariffs on China

Reuters reports the Chinese government's top diplomat Wang Yi stated on Wednesday that the U.S. pressure on Chinese firms such as tech giant Huawei Technologies is economic bullying and a move to try to prevent the country's development process.

"The use of U.S. power to suppress China's private enterprises, such as Huawei, is typical economic bullying," Wang said in a statement on the website of China's foreign ministry.

In another statement, Wang said that China's door would always be open to the U.S. for trade negotiations, but would not accept any unequal agreements.

U.S. stock-index futures fell on Wednesday, as increased trade worries and some disappointing earnings results from the retailers weighed on investor sentiment.

Global Stocks:

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

• Mnuchin told CNBC’s Ylan Mui that the U.S. has no plans to go to Beijing to resume trade negotiations when entering a hearing in front of the House Financial Services Committee.

Tesla (TSLA) target lowered to $191 from $238 at Citigroup; rating maintained at Sell

Statistics Canada reported on Wednesday that the Canadian retail sales rose 1.1 percent m-o-m to CAD51.30 billion in March, following a revised 1.0 percent m-o-m climb in February (originally a 0.8 percent m-o-m increase). That was the largest increase in retail trade since May 2018.

The result exceeded economists’ forecast, suggesting a 1.0 percent m-o-m advance for March.

According to the report, sales rose in 7 of 11 subsectors, representing 39 percent of retail trade.

The March advance was primarily attributable to higher sales at gasoline stations (+6.0 percent m-o-m) and building material and garden equipment and supplies dealers (+4.3 percent m-o-m).

Excluding motor vehicle and parts dealers, retail sales surged 1.7 percent m-o-m in March compared to an upwardly revised 0.7 percent m-o-m gain in February (originally a gain of 0.6 percent m-o-m) and economists’ forecast of a 0.9 percent m-o-m rise.

In y-o-y terms, Canadian retail sales jumped 2.6 percent in March, following an unrevised 1.8 percent advance in February.

• Withdrawal Agreement Bill will be published this upcoming Friday
• MPs will have the chance to amend Brexit Bill

Analysts at TD Securities expect that Canadian retail sales to see a large increase (+1.4%) in March due to a combination of strong motor vehicle sales and a sharp increase in gasoline prices.

• The latter should help to support ex. auto sales, where TD looks for a 1.3% advance. Meanwhile, volumes should underperform the nominal series with a 0.8% advance which would leave them little changed for Q1 as a whole.

Target Corp. (TGT) reported Q1 FY 2019 earnings of $1.53 per share (versus $1.32 in Q1 FY 2018), beating analysts’ consensus of $1.43.

The company’s quarterly revenues amounted to $17.627 bln (+5.0% y/y), generally in line with analysts’ consensus estimate of $17.490 bln.

The company also issued in-line guidance for Q2 and the full 2019 FY, projecting EPS of $1.52-1.72 (versus analysts' consensus estimate of $1.59) and $5.75-6.05 (versus analysts' consensus estimate of $5.84), respectively.

TGT rose to $76.80 (+6.73%) in pre-market trading.

• Second reading of WAB will allow parliament to come to a decision on customs and a second referendum

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. rose 2.4 percent in the week ended May 17, following a 0.6 percent decrease in the previous week.

According to the report, the refinance applications surged 8.3 percent, while applications to purchase a home dropped 2.0 percent.

Meanwhile, the average fixed 30-year mortgage rate decreased to 4.33 percent from 4.40 percent.

“Mortgage rates fell for the fourth straight week, with the 30-year fixed rate mortgage hitting its lowest level since January 2018, leading to a rebound in refinances,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Once again there was an increase in average refinance loan sizes, as borrowers with larger balances responded accordingly to lower rates.”

Lowe's Companies (LOW) reported Q1 FY 2019 earnings of $1.22 per share (versus $1.19 in Q1 FY 2018), missing analysts’ consensus of $1.33.

The company’s quarterly revenues amounted to $17.741 bln (+2.2% y/y), generally in line with analysts’ consensus estimate of $17.645 bln.

The company also issued guidance for FY 2019, projecting EPS of $5.45-5.65 (versus analysts’ consensus estimate of $6.05 and its prior guidance of $6.00-6.10) and revenues of +~2% y/y to ~$72.7 bln (versus analysts’ consensus estimate of $72.46 bln).

LOW fell to $102.11 (-8.09%) in pre-market trading.

We are fiercely committed to exceeding government GDP estimate this year

James Smith, a Developed Market economist at ING, notes the UK's headline inflation moved above the Bank of England’s 2% target in April, but this is largely down to an increase in a recently-introduced household energy price cap. 

• The UK energy regulator's decision lifted household electricity/gas prices by roughly 10% in April, but given recent declines in wholesale gas prices, this cap could be lowered again later in the year.
• Housing costs aside, underlying consumer price pressures appear more benign. At 1.8%, core inflation is a touch below target and we expect it to stay there for much of this year. In principle, this is another reason to think the Bank of England will keep rates on hold for the foreseeable future.
• That said, wage growth has been a bigger consideration for policymakers for some time, and this is continuing to run close to cycle-high rates. Pay has been rising more quickly amid growing skill shortages in the jobs market, particularly in areas such as construction and hospitality.
• Admittedly, there have been some tentative warning signs emerging on employment - hiring surveys have hinted at a reduced appetite to hire, particularly for full-time positions. This, combined with the fact that Brexit uncertainty will continue to keep a lid on growth (via lower investment), suggests to us that the Bank of England is likely to keep rates on hold through this year.
• Having said that, some recent hawkish comments from Governor Mark Carney signal that some further tightening shouldn't be completely ruled out in November if either a Brexit deal is ratified (unlikely) or the Article 50 period is extended further.

• We should defeat various domestic, foreign risks and challenges
• Says to step up technology innovation, expand industrial chain
• Says to push forward with quality manufacturing in the country
• Says to speed up development of core technologies with own intellectual property

Italy must avoid “at any cost” an EU infringement procedure over its deficit and public debt and negotiate with Brussels a “serious, gradual and structural” budget adjustment for the next three years, business lobby Confindustria said.

The European Commission is closely watching Italy because of the country’s huge public debt, proportionally the second highest in Europe after that of Greece. The Commission will issue a report on Italy’s state finances on June 5 that could call for the start of disciplinary measures.

“An infringement procedure has to be avoided at any cost”, Vincenzo Boccia, head of Confindustria, said, adding that Rome should craft a 32 billion euro budget for next year to comply with EU budget rules.

Jakob Christensen, chief analyst at Danske Bank, suggests that they are stressing that EUR/USD is in the hands of policy makers.

“The current policy inaction will keep EUR/USD in the current range, while it creates downside risks to our 1M and 3M forecasts of 1.12 and 1.13 if it further deteriorates risk sentiment. If policy makers in the US and China step up and manage a trade deal and/or ease monetary policy it would create the foundation for a higher EUR/USD. This is not a story for the short-term, though.”

We will set-up technology innovation and expand the industrial chain, Xi added further.

Xi didn't comment directly on the idea of banning exports of rare-element to the US but said that they are important strategic resources.

European Central Bank President Mario Draghi warned against exaggerating the tradeoffs between risk sharing and risk reduction in the eurozone, arguing it has hampered monetary policy transmission.

“Since a long time we have reached an impasse on key issues including on completing the banking union and deepening fiscal policy coordination,” Draghi said in Frankfurt on Wednesday. “This has been perpetuated by two alleged dichotomies -- the first is the notion that to complete banking union, risk reduction needs to precede risk sharing. The second is the idea that deepening risk-sharing through the private sector should take precedence over increasing public risk-sharing.”

Draghi’s comments signal heightened concern about a lack of progress in Europe, amid rising populism and despite EU leaders acknowledging that the euro area eventually needs some kind of joint fiscal capacity and common deposit insurance. He argued that markets typically panic when there is no element of risk sharing, and that appropriate backstops help stabilize market expectations.

According to Karen Jones, analyst at Commerzbank, USD/JPY’s near term rebound is viewed as corrective only and should terminate ideally around the 50% retracement at 110.71.

“The market recently charted a key week reversal from the 112.46 2015-2019 downtrend. Failure here should concentrate attention on the recent low at 109.02. Failure at 109.02 would push the late January low at 108.49 and the 50% retracement at 108.25 to the fore. Further down sits the 107.27 61.8% Fibonacci retracement. Minor resistance comes in at the 110.84 April 10 low and the 111.43 200 day ma, these guard the 112.46 downtrend. Above the 112.46 downtrend lies the 114.55 October 2018 high.”

According to the report from Office for National Statistics, the Consumer Prices Index (CPI) 12-month rate was 2.1% in April 2019, up from 1.9% in March 2019. Economists had expected a 2.2% increase

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 2.0% in April 2019, up from 1.8% in March 2019.

Rising energy prices and air fares, which were influenced by the timing of Easter, produced the largest upward contributions to change in the rate between March and April 2019. The largest, offsetting, downward contribution came from across a range of recreational and cultural items, which included computer games and package holidays.

The headline rate of output inflation for goods leaving the factory gate was 2.1% on the year to April 2019, down from 2.2% in March 2019.

The growth rate of prices for materials and fuels used in the manufacturing process was 3.8% on the year to April 2019, up from 3.2% in March 2019.

All product groups provided upward contributions to output annual inflation. Crude oil provided the largest upward contribution to the annual rate of input inflation, increasing to 6.9% on the year.

The Italian National Institute of Statistics (Istat) said, in 2019, GDP is expected to increase by 0.3 percent in real terms.The domestic demand will provide a contribution of 0.3 percentage points while foreign demand and inventories will provide a null contribution.

In 2019, exports will increase by 1.7 percent and imports will grow by 1.8 percent. Residential households consumption expenditure is expected to grow by 0.5 percent in 2019. The stabilisation in employment and the wages increase will support households purchasing power. Investment are expected to decelerate (+0.3%).

Labour market conditions will stabilize over the forecasting period. Employment growth is expected to increase at 0,1 percent in 2019. At the same time, the rate of unemployment will slightly increase at 10.8 percent in the current year.

Karen Jones, analyst at Commerzbank, suggests that GBP/USD pair has reached support offered by 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.”

China’s financial regulators have told some domestic banks to stop marketing so-called smart deposits, which look like high-interest term deposits but are in fact investment products, three sources told.

“Smart” deposits have been widely marketed by Chinese banks, especially smaller ones, since last year to attract deposits. But there are concerns they might violate rules for setting interest rates and could cause liquidity risks for smaller banks because they are an expensive way to attract depositors, analysts said.

Some banks were told on Wednesday to gradually reduce and clean up the outstanding amount of “smart” or “intelligent” deposits, the sources said. No specific time-frame was given for the plan.

Andrew Hanlan, analyst at Westpac, points out that Australian construction sector experienced a further cooling of conditions in early 2019, with construction work contracting for a third consecutive quarter, falling by: -3.6% in Q3 2018; -2.1% in Q4; and -1.9% in Q1 2019.

“The March quarter outcome fell short of expectations, which were for a consolidation (market median flat and Westpac +0.2%). With the construction sector accounting for about 14% of the economy, this result will subtract in the order of 0.25ppts from activity in the quarter (depending upon how these quarterly partials flow through to the national accounts). The key surprises were: (1) the softness in public works, despite a sizeable work pipeline; and (2) a further wind down of private infrastructure activity, despite the recent lift in commencements and the growing work pipeline.”

“In the UK, European elections kick off today. Normally, the elections would not be a major market mover but, given Brexit, it is more interesting this time, not least because the Conservative Party is likely to suffer a heavy defeat and Nigel Farage's new Brexit party may be the biggest party of all. In our view, it is likely this would increase pressure on Prime Minister Theresa May to resign. Furthermore, CPI inflation for April is also on the agenda", Danske Bank said.

"In the US, markets will keep an eye on the FOMC minutes from the May meeting set to be released later in the day. As the Fed has clearly communicated that it expects to be on hold for some time, focus will likely be mainly on the reasoning behind the surprise cut in the Interest on Excess Reserves (IOER)”, Danske Bank added.

Beijing is ready to resume trade talks with Washington, China’s ambassador to the U,S. Cui Tiankai said, as a top U.S. business lobby in China said nearly half its members are seeing non-tariff barrier retaliation in China due to the trade war.

No further trade talks between top Chinese and U.S. negotiators have been scheduled since the last round ended in a stalemate on May 10.

Negotiations between the United States and China have soured dramatically since early May, when Chinese officials sought major changes to the text of a proposed deal that the Trump administration says had been largely agreed.

But Chinese Ambassador to Washington Cui Tiankai said Beijing was still open for talks. “China remains ready to continue our talks with our American colleagues to reach a conclusion. Our door is still open,” Cui said on Tuesday.

He blamed the U.S. side for frequently “changing its mind” on tentative deals to end U.S.-China trade disputes. Cui said it was U.S. negotiators that had abruptly backed away from some previous deals that had been tentatively agreed over the past year.

TD Securities analysts point out that UK’s April inflation is released, and they are looking for core inflation to pick up to 2.0% y/y (consensus: 1.9%) while headline inflation jumps to 2.2% y/y (consensus: 2.2%, BoE: 2.2%).

“Easter effects will likely artificially boost the core number in April on stronger travel prices in 2019 vs 2018 (which saw an earlier Easter), while the Ofgem price cap lift will lead to a jump in energy prices that is likely to be sustained until a downward adjustment to the cap in October.”

• Domestic economy has entered into a delicate state

• Q1 GDP appears strong but driven by fall in imports, inventories

• Hard to say that economy is recovering

• Japan's fiscal stimulus is improving under QQE

• MMT is questionable as unlimited debt issuance would cause unwelcome inflation

• Central bank could extend forward guidance if it needed to ease more

• BOJ could strengthen forward guidance by committing to keep ultra-easing policy for longer than expected

• Cutting rates, increasing asset purchases or pace of money printing also among steps if BOJ were to ease more

• Rate cut may help to maintain inflation goal credibility

• 2019 inflation may fall short of target

• Fed needs to tread carefully to sustain US expansion

• Any adjustment in policy would be in response to incoming data

• Current trade disputes could become entrenched

• That could alter global trade patterns over the medium-term

• China selling US Treasuries not as big a threat as it is made out to be

• Flat US yield curve is a little bit worrisome

• Hopes that yield curve will steepen somewhat from here

• Chances of global or US recession is 'no higher than it ever was'

EUR/USD

Resistance levels (open interest**, contracts)

$1.1312 (4447)

$1.1272 (3015)

$1.1240 (1605)

Price at time of writing this review: $1.1155

Support levels (open interest**, contracts):

$1.1116 (4454)

$1.1080 (4024)

$1.1039 (2941)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 7 is 117505 contracts (according to data from May, 21) with the maximum number of contracts with strike price $1,1500 (9021);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2924 (520)

$1.2848 (338)

$1.2793 (183)

Price at time of writing this review: $1.2713

Support levels (open interest**, contracts):

$1.2673 (3672)

$1.2628 (4275)

$1.2598 (1806)

Comments:

- Overall open interest on the CALL options with the expiration date June, 7 is 39467 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 38774 contracts, with the maximum number of contracts with strike price $1,2700 (4275);

- The ratio of PUT/CALL was 0.98 versus 0.98 from the previous trading day according to data from May, 21

* - 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.