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Markets mixed as US-China meeting ends, Jackson Hole in focus

US stocks finished lower last night as dealers remain cautious regarding the US-China trading relationship. 

Yesterday, saw the introduction of $16 billion worth of tariffs on each other’s imports, despite that fact that trade talks were ongoing in the US. Chinese shares are in the red as the negotiations ended without an agreement. They discussed ‘structural issues’ like intellectual property – which is a major concern for the US. A spokesperson for the Beijing administration described the meeting as ‘constructive’, but it sends a message to traders that this situation won’t be resolved quickly. The negative press surrounding President Trump isn’t boosting investor confidence either.

The US dollar rallied yesterday as bargain hunting kicked in, and the currency seemed to enjoy the ‘flight-to-quality’ effect again, on account of heightened trade tensions with China. The Jackson Hole Symposium kicked off yesterday, and the event had a lot of media coverage as it always does. Esther George, the Kansas City Fed president issued an upbeat view of the US economy, as she believes the Federal Reserve can hike interest rates several more times before it can get to a ‘neutral’ position. Ms George made it clear that President Trump’s views regarding the hiking cycle, will not influence the central bank. Robert Kaplan, Dallas Fed president, reiterated the independence of the Federal Reserve, making it clear that Mr Trump won’t influence decisions in relation to interest rates. The stimulus effect is boosting the economy, but it will start to fade in 2019, according to Mr Kaplan.

The move higher in the greenback sent gold lower. The metal’s inverse relationship with the US dollar has been strong lately, and it prompted gold to fall back into the negative trend that it has been in since April. Other metals like, copper, palladium and platinum also lost ground on account of the firmer US dollar, but also because of ongoing concerns about China’s economy.

The Australian dollar has bounced back after it was announced that Scott Morrison is set to become the next prime minister. Mr Morrison will replace Malcom Turnbull as head of government, and this provided some much needed stability to the currency.

At 7am (UK time) Germany will release the second-quarter GDP reading and the consensus estimate is 0.5%, unchanged on the first-quarter. On an annual basis, the economy is expected to grow by 2.3%.

The US durable goods report will be released at 1.30pm (UK time) and economists are expecting a decline of 0.5% in July, and that would be a major decline from the 0.8% growth in June. Stripping out transportation, the durable goods report is expected to increase by 0.5%, and that compares with 0.2% in June.

Jerome Powell, the head of the Federal Reserve, is expected to deliver a speech at the Jackson Hole Symposium at 3pm (UK time). On Wednesday, the US central bank dropped a big hint that there will be an interest rate hike in September, so traders will be expecting much of the same. The ongoing trade spat with China has the potential to damage the US economy, but we would need to see a prolonged period of tariffs before we see any significant changes to the respective economies.  

EUR/USD – now that it has broken above the 1.1500 region, we could see further gains, and resistance might be found at 1.1611 – 50-day moving average. If the wider negative trend continues, support might be found at 1.1287 or 1.1156.

GBP/USD – has been in a downtrend since April, and if the bearish move continues it could target 1.2590. Pullbacks might run into resistance in the 1.2957 to 1.3000 region.       

EUR/GBP – has been pushing higher since April and if the bullish run continues it could target 0.9050. A move lower might find support at 0.8900 or 0.8844. 

USD/JPY – the upward trend that began in March is still intact, and if the positive move continues it might target 112.15. Support might be found at 109.86 – the 200-day moving average.

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