Trade deal optimism inspires risk on trading activity but caution over lack of details surrounding trade deal caps gains. US Preliminary PMIs in focus.
Summary: Global equities are on to a positive start for the week over headlines driven momentum. Headlines from weekend saw U.S. trade representative Robert Lighthizer comment that a trade deal with China is totally done pending the need for translation and revisions to its text.
During his appearance in CBS’s Face the Nation program, he mentioned that the deal commonly referred to as “Phase-1” is absolutely done and this deal will see China increase its purchase of US goods from agriculture, manufacturing and energy sector by USD 200 billion over the next two years. It seems like Chinese representatives have pledged to better protect US intellectual property and curb the coerced transfer of American tech to Chinese firms as part of the deal. While the exact date on when the deal will be signed hasn’t been announced yet, the US has promised that it will reduce the tariff rate on Chinese goods worth $120 billion by half to 7.5% 30 days post-signing of the trade deal by both nations.
As back to back signs of fresh progress in trade talks hit the market after quite a while now, risk appetite has soared in the global market causing risk assets and indices from both the forex and stock market to see huge gains today. European markets took cues from the Asian market and saw a positive opening on all of its major markets with several key benchmark indices up by more than 0.60% at the start of the session.
Decisive win for UK PM Boris Johnson and his promise for a swift resolution of Brexit also comes as a fundamentally positive influence for European risk assets.
In the forex market, most major global currencies are trading positive while a few currency pairs trade flat as USD gained strength over recent news of progress in trade talks
Precious Metals: Rare metals market is seeing most precious metals trade flat as prevalent risk on trading activity in global stock and forex market led to reduced demand for safe-haven assets and reduced fund flow to rare metals. Further, a spike in USD and profit booking activity following price spike of rare metals to multi-month highs since last Friday also added pressure to rare metals resulting in today’s flat price action.
Crude Oil: Crude oil is seeing positive price action in the global market on both major international benchmarks but the price has declined from recent highs scaled on Friday. While optimism surrounding trade deal headlines continues to underpin crude oil bulls, lack of clarity in recent updates on an exact time frame for the deal to be signed by both parties comes as major blow causing investors to remain cautious resulting in the price of liquid gold seeing subdued price action today.
AUD/USD: The pair is trading with a dovish note today as pair suffers significant bearish pressure from local factors despite prevalent positive influence and risk on investor sentiment from the global market. Australian government’s downward growth revision to growth forecast and lower than expected Australian budget surplus caused investors to speculate the possibility of another interest rate reduction from RBA offsetting positive cues from trade deal optimism and upbeat Chinese data.
On The Lookout: The main focus continues to remain on the Sino-U.S. trade deal as investors are beginning to grow cautious once again. While fresh updates have hit the market post quite a while now, lack of timeline details and clarity of measures from China to meet US demands for prevention of coercion to share US tech details keeps investors over the edge resulting in cautious sentiment growing stronger with each passing hour in European market hours.
On Brexit front, traders are now on the lookout for efforts from PM Boris Johnson to ensure swift Brexit resolution and for measures to help mitigate damage received in the UK economy over Brexit uncertainties from the last couple of years.
On the release front, traders await Preliminary Manufacturing, Markit Composite and Service PMI’s from US calendar in North American market hours and RBA meeting minutes and Home loan data from Australia during Pacific-Asian market hours.
Trading Perspective: Broad-based risk on investors’ sentiment will help major forex pairs trade with a positive note, but escalating Sino-U.S. trade deal-related caution and firm USD will continue to cap gains. US futures trading in the international market continues to trade positive ahead of Wall Street opening on trade deal optimism despite growing caution which suggests Wall Street is likely to open positive but see subdued price action.
EUR/USD: The pair opened for the week on a positive note but lost its gains on disappointing German preliminary PMIs and EU area macro data. Further, the spike in USD supported by a rise in US bond yields also weighed down EURO causing pair to trade flat with slight bullish note while traders await US preliminary data for short term profit opportunities.
GBP/USD: The pair is trading positive with clear bullish bias as GBP bulls are underpinned by recent election outcomes and growing optimism surrounding the possibility for swift Brexit resolution. However, disappointing preliminary PMIs gave a blow to GBP bulls capping gains while traders await US preliminary data for short term profit opportunities.
USD/CAD: The pair slide to fresh monthly lows today falling below mid-1.31 handle as broad-based risk appetite and positive crude oil price underpinned commodity-linked currency Canadian Loonie. However, gains were capped as USD also remained firm underpinned by a spike in US bond yields. Traders now wait for US preliminary PMI’s for short term profit opportunities.
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