Midday Brief – Recession fears overtaken by geopolitical tensions

Investors shift their focus to geopolitical tensions rising between the two largest economies, US and China over Nancy Pelosi’s visit to Taiwan: flying in with a fighter jet escort. The spokesperson of the Chinese Foreign Ministry said the move would see “very serious developments and consequences”.

The RBA raised rates by 50bps noting that future hikes will be guided by the board’s assessment of inflation data and the labour market. The dollar and Yen are trading north on safe-haven bids.

GBPAUD soared by +1.10% as bears shrug off the RBA rate hike early Tuesday. The central bank raised interest rates by 50bps to 1.85% as expected. The accompanying statement by the RBA Governor Lowe was taken as dovish as they failed to provide forward guidance.

The BoE is expected to hike rates by 50bps on Thursday giving the sterling a boost. If the BoE does not act as per expectations, we could see the pair dropping to 1.7200. Intraday support resides at 1.7400 with a bullish cap at 1.7800.

EURUSD was down by -0.24% towards the 1.0200 mark as the rising US-China tensions are weighing on the risk mood giving the dollar some ground amid safe-have bids. The US Manufacturing PMI for July rose to 52.8 helping the Dollar against the Euro. A break below 1.0200 could trigger selling pressure towards the 1.0150 level. Upside gains are capped by 1.0400. The US economic docket features JOLTs job openings and API weekly crude oil inventories due for release in the New York session.

CADJPY slumped by -0.74% as bulls failed to hold gains above the 102.50 mark. The commodity-backed currency is weaker on declining oil prices as the global manufacturing downturn is threatening oil demand. The Yen is stronger on safe-haven bids as geopolitical tensions are weighing risk sentiment. A further slide may lead to 101.00.

European stocks were mixed amid the US and China’s rising tensions. The FTSE 100 rose by +0.18% getting a boost from BP’s reports on dividends boost. The index is trading above 7400 with major resistance at the 7500 level. CAC 40 is trading -0.68% lower below 6400 and critical areas to watch out for are 6300 and 6255. DAX fell -0.73% away from the 13450 mark and bearish targets may be set at 13250 and 13000.

US stock futures are trading south as China threatens to respond with military action on Pelosi’s visit to Taiwan, a Beijing claimed territory. DJIA futures fell by -0.50% with an intraday resistance at 32750. Bears may target the 32500 and 32000 levels. S&P 500 futures are down -0.80% with an intraday resistance residing at 4120 and a further slide could give bears 4075 and 4000 levels. Nasdaq 100 futures traded lower by -1.16% after poking above 13000, a 12-week high. Bears may target the 12600 and a breach of that mark may give room for 12200.

Oil prices face a downswing for the second day this week on demand supply concerns. Investors fear that a global manufacturing downturn may hit the black liquid’s demand ahead of the OPEC+ meeting on Wednesday.

The Caixin Manufacturing PMI for July fell to 50.4 vs 51.5 expected showing a global downturn as China is one of the biggest manufacturing economies. USWTI futures fell by -0.76% trading at $92.90/barrel with $92.00 as a barrier to the downside. Brent is down -1.00% to $98.65/barrel and targets may be seen at $95.00/barrel.