European and US equity markets gained ground last week as the improved trading relationship between the US and China raised market confidence, and stimulus from the European Central Bank (ECB) helped too.

At the back end of last week, President Trump said he would consider striking an interim trade deal with China, and Beijing announced that it would not add further tariffs to agricultural goods, like Soybeans and pork. Things are heading in the right direction in terms of trade on the US-China front and on Friday, the Dow Jones finished higher for the eighth consecutive day. The S&P 500 finished slightly lower, but it still closed above the 3,000 mark.

At the latest ECB update, the deposit rate was cut further into negative territory, and a government bond buying scheme of €20 billion per month was announced too. The scheme will begin in November. There is a lot of talk about Germany going into a recession, and its manufacturing sector has been in contraction all through 2019. The inflation rate in the currency bloc is weak, and the ECB predict that it will remain low in the next few years. The central bank chief, Mario Draghi, made another plea for fiscal stimulus to solve the region’s economic woes, and it is clear that monetary policy won’t be enough to jolt the eurozone out of its economic malaise.

Oil surged on the open of trading on the back of a drone attack that caused an enormous disruption to Saudi Arabia’s oil production. It was initially reported that Saudi Arabian oil production was cut by 50%, but almost half of the production that was lost has been restored. Even if, and when, the Saudi’s get back to full oil production, tensions in the region are going to remain high, and that is likely to prop up the oil market. The energy is off the highs of the session. President Trump has authorised the use of the US’s strategic petroleum reserves, in case it is needed. The US president said they are ‘locked and loaded’ and they are awaiting Saudi Arabia’s verification of the attack. Houthi rebels in Yemen claimed responsibility for the attack, but the Trump administration suspects Iran was to blame.     

Overnight, China published a number of economic reports. The fixed asset investment reading was 5.5%, and economists were expecting it to remain at 5.7%. The industrial production report was 4.4%, and the consensus was 5.2%. Retail sales came in at 7.5%, while the forecast was 7.9%. These reports all undershot expectations, and it doesn’t project a positive image of China. Stocks were mixed in Asia.  

Gold ended the week in the red last week as the risk-on sentiment of traders saw money being taken out of the commodity. The metal wasn’t the only safe haven that has lost ground recently, as the Japanese yen has traded lower too.  

Brexit will remain in focus and Prime Minister Johnson will travel to Luxemburg today to meeting with the EU’s Jean Claude Juncker. Mr Johnson said he is confident he can strike a deal with the EU in a matter of weeks. The backstop remains an issue and the UK government have yet to put forward a solution that would get solve the situation.  

At 1.30pm (UK time) the US empire state manufacturing report will be published, and traders are expecting at reading of 4.1.

EUR/USD – snapped at the beginning of the month, and if it holds above 1.1000, it might pave the way for 1.1164 to be retested. If the wider bearish trend continues it might target at 1.0900.  

GBP/USD – rebounded nearly two weeks ago, and if it holds above the 1.2200 area, it might bring 1.2600 into play. Support might be found at 1.1900, should the wider bearish move continue.   

EUR/GBP – lost ground five weeks in a row, and should the negative move continue it might target 0.8800. A bounce back might run into resistance at 0.9000.

USD/JPY – rebounded in last August, and if it holds above the 107.12 area – 50-day moving average, it might bring 109.31 into play. Should the wider downtrend continue it might retest the 106.00 area.  

 

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.