Sentiment cools post trade optimism

Sentiment cools post trade optimism

The talk of China and the US removing their respective tariffs drove European and US equity markets higher yesterday. 

It was announced that should the first phase of the trade talks be agreed upon next month, then the tariffs could be removed. The news was seen as big progress because it wasn’t long ago that both sides were ramping up the rhetoric.

The trade story has been doing the rounds a lot recently and the trading relationship has been slowly but surely getting better, and now there is the possibility the levies could be dropped. Earlier in the week, Wilbur Ross, the US commerce secretary, said the US might not impose levies on EU vehicles, which boosted eurozone stock markets. Yesterday, the DAX hit a level last seen in January 2018, and the feelgood factor from the US-China story was the driving behind the move. Traders view the progress being made between Washington DC and Beijing as a good omen for the EU’s relationship with the US.

The mood was bullish on Wall Street as the Dow Jones, S&P 500 in addition to the NASDAQ 100 all racked up fresh record highs. After the European markets were closed, the US confirmed the initial trade deal will see a rollback on tariffs. The risk-on sentiment was evident across the board as gold plus the Japanese yen lost ground – both assets typically outperform when traders are nervous.

The bullish sentiment with regards to trade lifted the oil markets too. China in the largest importer of oil in the world so any positive news about trade usually helps the oil market. The move yesterday was in stark contrast to the losses endured on Wednesday when OPEC leaders said they don’t want to see further cuts to output.   

The pound lost ground yesterday after it was revealed that Michael Saunders plus Jonathan Haskel both voted to cut interest rates by 0.25%, while the rest of the monetary policy committee voted to keep rates on hold at 0.75%. The votes caught traders by surprise as it begs the question, if the policymakers would lower rates now, what would the central bank do in the event of a disorderly Brexit.

Overnight China released the trade data. Exports were -0.9%, while the consensus estimate was -3.9%. Imports were -6.4%, and the consensus estimate was -7.8%. Keep in mind the Caixin survey of Chinese manufacturing hit its highest level in over two years in October.  Beijing confirmed that phase one of the trade deal would include tariffs roll back.

German trade data will also be in focus this morning as it will be a gauge of domestic as well as global demand. The report will be released at 7am (UK time).  

At 7.45am (UK time) France will post the latest industrial production report and economists are expecting 0.3%, which would be a rebound from the -0.9% in August.   

The Canadian unemployment rate is expected to hold steady at 5.5%, and the employment change is tipped to show an increase of 15,900. The figures will be posted at 1.30pm (UK time).

The preliminary reading of the University of Michigan consumer sentiment reading will be released at 3om (UK time). The reading is expected to be 95.9.

EUR/USD – has been driving higher since the start of the month, and a break above 1.1200 might put 1.1249 on the radar. A move lower might bring the 50-day moving average at 1.1039 into play.    

GBP/USD – remains in the recent aggressive upward trend and a sizeable break above the 1.3000 area might bring 1.3178 into play. A move lower might put the 200-day moving average at 1.2706 on the radar.           

EUR/GBP – is still in the bearish trend, and a break below 0.8575 could pave the way for 0.8471 to be targeted. If it manages to hold above the 0.8600 mark, it might retest 0.8786. 

USD/JPY – while it holds above the 50-day moving average at 107.80 it could target 110.00. A move back below the 50-day moving average might bring 106.48 into play.     







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