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China trade optimism keeps markets edging higher

Equity markets got off to a flying start to the week yesterday, helped by optimism over the prospects of a US, China trade deal, as well as a fresh wave of M&A activity on both sides of the Atlantic.

US markets in the shape of the Nasdaq and S&P500 once again posted new record highs with this particular steam roller showing little sign of running low on momentum.

European stocks also enjoyed a positive start to the week, as they looked to retest the highs of earlier this month, after reports over the weekend that China had indicated that it was prepared to take tougher action over infringements in intellectual property violations. A report in China’s Global Times also suggested that there had been agreement on the roll back of some tariffs.

In a further sign that progress appeared to be being made the Chinese Ministry of Commerce released a statement earlier today saying that both sides had “reached a consensus” on properly resolving a number of relevant issues. As a result markets in Asia have picked up from where US and European markets left off yesterday, and as such we could well see another positive start for European markets later this morning.

While it is easy to be sceptical about these sorts of reports, given we’ve heard them so many times before, particular the ones about a roll back of tariffs, they do tend to create a momentum all of their own, even when they are denied, and no matter how cynical you are, it has tended to be a fool’s errand in standing in the way of any move higher.

As such optimism is rising that a phase one trade deal could be agreed before the 15th December when new US tariffs are expected to kick in, however it seems much more likely that these could well be deferred once more, with an agreement more likely to occur sometime in the New Year, if we get one at all.

The continued impasse remains a clear and present danger to the global economy, with data released yesterday, from the CPB World Trade Monitor showing that global trade contracted sharply in September, reversing the rebound seen in July and August. This contraction also happened to coincide with the introduction of new US tariffs on Chinese goods at the beginning of September.

The data also casts doubt on the recent recovery seen in recent data out of China and Europe which appeared to suggest that a rebound in economic activity might be underway.

With the US economy set to head into one of its busiest periods of the year in the lead-up to Thanksgiving, the health of the US consumer has never been more important, when it comes to the overall narrative of the resilience of the US economy.

Last month consumer confidence held fairly steady at 125.9, up slightly from 125.1 in September, and while it remains at these sorts of levels investors are unlikely to be overly concerned about a slowdown in consumer spending. Today’s numbers for November are expected to edge up to 126.9, as we head towards Black Friday and Cyber Monday.

For now equity investors appear to have the upper hand with the haven trades taking a back seat, with gold prices sliding for the third day in a row, and the Japanese yen sliding back.

The pound had a good day yesterday, edging back towards recent highs, as the opinion polls once again showed the Conservative lead over Labour holding steady, though as with 2017 there remains a great deal of nervousness that this poll lead might well disappear in the days leading up to the vote on 12th December.

EURUSD – continues to look a little soft with support at the lows this month just above the 1.0980 level.  The risk remains for a move below the 1.0980 level, with a break opening up a return to the October lows of 1.0880. Broader resistance can be found at the 1.1180 area and 200-day MA.

GBPUSD – the resistance at the 1.3000 area continues to cap the upside, while we also have support at the 1.2760 area. The 200-day MA at 1.2680 is a big support level and while above it the scenario remains bullish for 1.3200.

EURGBP – pressure remains on the downside while below resistance at the 0.8670/80 area, and recent range highs. Support currently at the November lows at 0.8520, on the way to the lows this year at 0.8410.

USDJPY – currently have resistance at the recent highs at 109.50 area. The failure to follow through towards 110.00 keeps the risk for a move back to the lows this month at 107.80. We also have interim support at the 108.20 area and 50-day MA.

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