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European and Chinese stocks markets are selling off from critical comments from Beijing that put a dent in trade talk optimism.  Flight to safety is the early morning theme and we may see that continue if we see softer Michigan sentiment and leading index data just after the open.  Safe-haven currencies, the Japanese yen and Swiss franc are outperforming with the early risk averse flows.  Before the open President Trump confirmed the delay of auto tariffs for at least 180 days, that news was heavily priced in and saw a slight bid with equities.

• China Speak – Raises concern that talks may not resume
• Brexit – Cross-party talks appear done and so is the PM
• Spain – 10-year bond yield drops to record low
• Oil – What will OPEC + do next?
• Gold – No safe-haven appeal today

China Speak

Last night, multiple comments and reports confirmed China was switching to a firm stance on holding off talks until the US changes tactics.  China foreign minister Lu Kang reiterated China’s frustration with the US measures on Huawei and the effect to 5G going forward.  He added that China will take necessary measures to safeguard its rights and interests.  The foreign minister also confirmed earlier reports that no details exist on a Trump -Xi meeting.

The Editor-in-chief of the Global Times Hu Xijin tweeted, “The US Commerce Department put Huawei on its Entity List, making trade war more like a real ‘war’. Trade talks have been stuck in deep shock. The Chinese are more convinced concessions won’t bring peace. The only way for China is to strengthen independent research & development.”

A Chinese Communist Party Official stated a trade war could reduce China’s growth by 1%.

The onshore yuan fell to the weakest levels since December.

Brexit

The British pound continues to fall against all its major trading partners as Theresa May’s premiership nears an end.  Labour’s abandonment of talks pretty much cements the end of May’s deal getting pushed through.  Despite the high likelihood of her not delivering Brexit, she remains committed to put her bill up for one final vote.  She is considering the next step of indicative votes, but that probably does not matter as Labour is set on not working with a government that is about to collapse.

Former Foreign Secretary Boris Johnson will be one of the favorites to replace May, but regardless of who takes over, they will still have the same deadlock that May is dealing with.  Brexit is poised to drag on longer than anyone wants.

Spain

Spain’s economy has outperformed in Europe and investors are viewing Spanish bonds as a safer investment versus the rest of the periphery.  Spain’s 10-year yield fell to fresh record lows of 0.861% before settling back around the 0.863 level.  Spain’s bond market has provided investors with great yield for what was once considered one of the riskiest investments.

Italy’s 10-year yields came down sharply as markets appreciated the Deputy Prime Minister Di Maio’s de-escalation of his coalition partner Salvini’s comments that Italy will break the EU fiscal rules.  Di Maio noted that nobody wants to go 140%, otherwise debt-to-GDP level would be out of control.

The euro is mixed against the majors with the biggest declines to the Japanese yen.

Oil

Geopolitical risks are the fire that keeps crude prices rising, with both Brent and WTI poised for another strong weekly gain, but respectively few dollars shy of their highs seen last month.  Brent’s backwardation is seeing the spread continue to widen between the 1-and 3-month spreads as risks to supply remain elevated in the Persian Gulf, Russia’s contaminated crude to Europe, and OPEC’s spare capacity might fall short of covering oil output that is at risk.

This weekend’s OPEC + alliance meeting will likely deliver some queues, but nothing concrete that will signal how production targets will be changed.  The technical meeting is a risk for seeing the alliance fall apart, but the most likely scenario is that they punt to June meeting.

Gold

The risk-off tone is not delivering a strong bid for gold today, and that is mainly attributed to the overall strength we saw with US data this week and optimistic outlooks we saw on the corporate front.  China’s fading interest to resume talks is putting a dent in equities, but the overall belief still remains that both sides will eventually move the needle closer to outlining a deal.

Daily Pivots: (S1) 109.46; (P) 109.71; (R1) 110.10; More...

Intraday bias in USD/JPY remains neutral as consolidation from 109.02 is still unfolding. Further decline is expected as long as 110.04 resistance holds. On the downside, break of 109.02 will resume the fall from 112.40 to retest 104.69 low. Nevertheless, break of 110.04 minor resistance will indicate short term bottom. Lengthier consolidation could then be seen before another decline.

In the bigger picture, USD/JPY is staying inside falling channel from 118.65. Currently development suggests that rebound from 104.69 is only a corrective move. And fall from 118.65 is not completed yet. Decisive break of 104.69 will extend the down trend towards 98.97 support (2016 low). For now, we'd expect strong support above there to bring rebound.

Daily Pivots: (S1) 1.0079; (P) 1.0094; (R1) 1.0115; More...

USD/CHF is staying in consolidation from 1.0050 temporary low for now. Intraday bias stays neutral first. In case of another rise, upside of recovery should be limited by 1.0126 minor resistance to bring fall resumption. On the downside, break of 1.0050 will resume the fall from 1.0237 to retest 0.9879 key support. However, firm break of 1.0126 will turn bias back to the upside for 1.0237 resistance.

In the bigger picture, as long as 0.9879 support holds, medium term up trend form 0.9186 is still in progress. Break of 1.0237 will target 1.0342 resistance next. For now, we'd be cautious on strong resistance from there to limit upside, until we see medium term upside acceleration. However, decisive break of 0.9879 will be a strong sign of medium term reversal. Focus will be turned back to 0.9716 support for confirmation.

Daily Pivots: (S1) 1.1148; (P) 1.1187; (R1) 1.1213; More.....

Intraday bias in EUR/USD remains mildly on the downside. Consolidation from 1.1111 should have completed at 1.1263 already. Deeper fall would be seen to retest 1.1111 low. Decisive break there will resumer larger down from from 1.2555 to 100% projection of 1.1448 to 1.1183 from 1.1324 at 1.1059. Though, on the upside, above 1.1224 minor resistance will turn bias back to the upside to extend the consolidation from 1.1111 first.

In the bigger picture, down trend from 1.2555 (2018 high) has just resumed. 61.8% retracement of 1.0339 (2016 low) to 1.2555 (2018 high) at 1.1186 was also taken out. Current fall should now target 78.6% retracement at 1.0813. Sustained break there will pave the way to retest 1.0339. On the downside, break of 1.1448 resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

Daily Pivots: (S1) 1.2768; (P) 1.2815; (R1) 1.2842; More....

GBP/USD drops to as low as 1.2736 so far today and intraday bias remains on the downside. Current decline from 1.3381 should target retesting 1.2391 low. On the upside, above 1.28.08 minor resistance will turn intraday bias neutral for consolidation first. But recovery should be limited well below 1.3176 resistance to bring fall resumption.

In the bigger picture, medium term decline from 1.4376 (2018 high) halted and made a medium term bottom after hitting 1.2391. Rebound from 1.2391 is seen as a corrective move for now. In case of another rise, strong resistance could be seen around 61.8% retracement of 1.4376 to 1.2391 at 1.3618 to limit upside. On the downside, break of 1.2773 support will suggests that such corrective rise is completed and bring retest of 1.2391 low first.

Sterling suffers heavy selling today as after Brexit negotiations between the UK government and opposition Labour formally collapsed. More uncertainties lie ahead as Prime Minister Theresa May will lay our the time line for stepping down, whether her Brexit deal would be approved by the Commons in June or not.

On the other hand, sentiments are also weighed down by China's hard stance on trade negotiations with the US. China seems rather uninterested to resume the talks, unless three core issues are resolved, including eliminating all tariffs, the amount of additional purchases and texts of the agreement. It's also part of the reason that's weighing on Chinese, European and US stocks, as well as treasury yields.

In the currency markets, Canadian Dollar follows Sterling as the second weakest for today, then Australian. Yen is the strongest, followed by the resilient Euro, and then Dollar. For the week, Yen and Swiss Franc are the strongest, followed by Dollar. Sterling is the weakest, followed by Aussie and Kiwi.

In Europe, currently, FTSE is down -0.39%. DAX is down -0.87%. CAC is down -0.50%. German 10-year yield is down -0.022 at -0.113. Earlier in Asia, Nikkei rose 0.89%. Hong Kong HSI dropped -1.16%. China Shanghai SSE dropped -2.48%. Singapore Strait Times dropped -0.77%. Japan 10-year JGB yield rose 0.0047 to -0.055.

UK opposition Labour declares collapse of Brexit talks with government

UK opposition leader Jeremy Corbyn formally announced collapse of Brexit negotiation with the government. In a letter to Prime Minister Theresa May, Corbyn said the talks had "gone as far as they can".

And, "it has become clear that, while there are some areas where compromise has been possible, we have been unable to bridge important policy gaps between us…. Even more crucially, the increasing weakness and instability of your government means there cannot be confidence in securing whatever might be agreed between us."

May would now bring the Brexit Withdrawal Agreement back to the Commons in the first week of June. But there is practically no chance of getting it approved. Most importantly, regardless of the outcome of the vote, May agreed hammer out her the time line to step down with 1922 Committee chairman Graham Brady.

Eurozone CPI finalized at 1.7%, core CPI at 1.3%

Eurozone CPI was finalized at 1.7% yoy in April, up from 1.4% in March. Core CPI was finalized at 1.3% yoy. The highest contribution to the annual Eurozone inflation rate came from services (0.86%), followed by energy (0.51%), food, alcohol & tobacco (0.29%) and non-energy industrial goods (0.06%).

For EU28, CPI was finalized at 1.9% yoy, up from 1.6% in March. The lowest annual rates were registered in Croatia (0.8%), Denmark and Portugal (both 0.9%). The highest annual rates were recorded in Romania (4.4%) and Hungary (3.9%). Compared with March 2019, annual inflation fell in six Member States, remained stable in two and rose in nineteen.

BoJ Kuroda: Keeping rates low for extended period means quite a long time

BoJ Governor Haruhiko Kuroda reiterated the central bank's forward guidance that "there's a good chance current low interest rates will be maintained beyond (the spring of 2020) depending on future developments". In a speech he emphasized "when we say we will keep rates low for an extended period of time, we mean it will be maintained for quite a long time."

On the economy, Kuroda expects it to continue to expand moderately. Though, "if overseas growth takes longer than expected to pick up, Japanese companies – manufacturers in particular – could become cautious about spending on capital expenditure".

While the economy is facing some risks, Kuroda dismissed that the so called "Modern Monetary Theory" as being a "wrong idea". He said "when a central bank monetizes debt unlimitedly, it will most certainly trigger hyper-inflation and cause huge damage to the economy." And, "it's a common understanding among central banks of advanced economies that they ought not monetize debt.

BusinessNZ Manufacturing PMI rose to 53.0, growth pickup still in questions

New Zealand BusinessNZ Manufacturing PMI rose to 53.0 in April, up from 52.0. Looking at the details, production dropped -0.1 to 50.8, employment dropped -0.4 to 51.6, new orders dropped -0.3 to 52.4, finished stocks dropped to 0.8 to 51.9. On the other hand, deliveries jumped sharply by 3.6 to 56.3.

BusinessNZ's executive director for manufacturing Catherine Beard said that while the improvement in activity for April was welcome, the underlying trend still remains a concern. She noted "Although this indicates the sector is still in expansion mode, the unadjusted series has tended to trend down since late 2017.  If this trend continues, it will eventually have negative consequences for the main published result".

BNZ Senior Economist, Doug Steel said that "the headline PMI looks reasonable but some of the details have cooled off including new orders. It raises questions for those looking for a strong growth pickup later in 2019".

Impact of new US tariffs controllable, China not keen to resume trade talks

The National Development and Reform Commission of China said it's the overall impact of the latest 25% tariff on around US 300B in Chinese goods is "controllable". The government has implemented and will continue to carry forward measures to keep growth in a "reasonable range". And the measures will target to stabilize areas such as consumption, investment and employment. Also, NDRC noted the government will also keep bettering its business environment and leveling the playing field, to ensure the sustainability of investments.

Separately, Bloomberg reported that China is not very keen in resuming trade negotiations with US, quoting a mysterious blog Taoran Notes). The blog is believed to be backed by the government and is one of the few voices on China's negotiations strategy in a censored internet world in the country. The blog piece noted: "We can't see the U.S. has any substantial sincerity in pushing forward the talks. Rather, it is expanding extreme pressure… If the U.S. ignores the will of the Chinese people, then it probably won't get an effective response from the Chinese side," it added.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2768; (P) 1.2815; (R1) 1.2842; More....

GBP/USD drops to as low as 1.2736 so far today and intraday bias remains on the downside. Current decline from 1.3381 should target retesting 1.2391 low. On the upside, above 1.28.08 minor resistance will turn intraday bias neutral for consolidation first. But recovery should be limited well below 1.3176 resistance to bring fall resumption.

In the bigger picture, medium term decline from 1.4376 (2018 high) halted and made a medium term bottom after hitting 1.2391. Rebound from 1.2391 is seen as a corrective move for now. In case of another rise, strong resistance could be seen around 61.8% retracement of 1.4376 to 1.2391 at 1.3618 to limit upside. On the downside, break of 1.2773 support will suggests that such corrective rise is completed and bring retest of 1.2391 low first.

Economic Indicators Update

EURGBP sees additional price strength on bull pressure following its recent strength. On the downside, support stands at the 0.8700 level where a violation will turn focus to the 0.8650 level. A break below here will aim at the 0.8600 level. Conversely, resistance lies at the 0.8800 level. A violation if seen will turn risk towards the 0.8850 level. Further up, resistance comes in at 0.8900 level followed by the 0.8950 level. Its daily RSI is bearish and pointing lower suggesting further weakness. All in all, EURGBP sees additional price strength on bull pressure.

Entering into US session, Sterling is clearly the weakest for today. Selloff in the Pound accelerates after Labour party formally declared collapse of Brexit talks with the government. No one knows what's next for Brexit, and not even who'll be leading the government after Prime Minister Theresa May's Brexit deal is defeated again in June (highly likely). Canadian Dollar followed as the second weakest and then Australian Dollar.

In addition to Brexit uncertainties, sentiments are weighed down by China's hard stance on trade negotiation with the US. No further talk is scheduled for now and China seems uninterested to resume the talks. Tensions between US and China has turned from bad to worse after Trump's double assault on Huawei. Chinese stocks closed below 2900 handle at 2882.30 today, down -2.48%. USD/CNH resumed recent rally and hit as high as 6.9448. Major European stocks are in red. German 10-year yield is back below -0.1 at -0.0117. DOW future is down -200 pts for the moment. Yen is currently the strongest one for today.

In Europe, currently:

• FTSE is down -0.55%, despite selloff in Sterling, which suggests FTSE is indeed rather weak.
• DAX is down -1.22%.
• CAC is down -0.76%.
• German 10-year yield is down -0.0265 at -0.117.

Earlier in Asia:

• Nikkei rose 0.89%.
• Hong Kong HSI dropped -1.16%.
• China Shanghai SSE dropped -2.48%.
• Singapore Strait Times dropped -0.77%.
• Japan 10-year JGB yield rose 0.0047 to -0.055.

GBPAUD is edging slightly higher after the pullback on the 23.6% Fibonacci retracement level of the upleg from 1.7220 to 1.8880 near 1.8485. The RSI is flattening around the neutral threshold of 50, while the stochastic oscillator is moving near the oversold territory. However, the 20- and 40-simple moving averages (SMAs) in the daily chart posted a bullish cross despite the latest bearish movement.

On the upside, the price could touch once again the 35-month high of 1.8880, while a successful climb above this barrier could increase bullish sentiment until the significant psychological barrier of 1.9000.

Alternatively, if the price slips further below 1.8485, support could be faced around the 40-day average currently at 1.8430. Further declines could flirt with the 38.2% Fibonacci mark of 1.8243 ahead of the two-month low of 1.8100.

Overall, despite the latest rebound since yesterday, GBPAUD seems to be in negative correction after the downfall from 1.8880. However, if the price remains above the short-term SMAs, investors could turn their interest to the upside again.

Sterling on the decline again as hard Brexit fears rise

The pound is on the decline again as reports continue to suggest that Brexit talks between the Conservatives and Labour are about to reach an unsuccessful conclusion.

Once again precious weeks have been lost and it appears we’re no closer to agreeing on the country’s exit from the European Union. This uncertainty combined with the prospect of a more hardline Brexiteer – one of which has already thrown his hat into the ring – is unsettling sterling traders.

GBPUSD Daily Chart