Summary: Equity markets which started off on dovish tone for the week as headlines hinted that tension between China & US was on rise owing to issue of Huawei executive being arrested in China on request from US government and investors expected the trade negotiations had a chance to fall apart. However equity markets started turning positive during European market hours on Tuesday supported by positive macro data and news that representatives from China & USA were discussing future route for trade negotiations to progress over phone calls. News that Huawei arrest had little to no-impact on trade talks greatly boosted investor appetite resulting in Asian and European equities opening positive and trading with significant gains during Wednesday’s market hours. Optimism surrounding Sino-U.S. trade talks was further boosted as US President Donald Trump told Reuters that he is optimistic about trade deal and negotiations were preceding in favorable direction. He also mentioned that he would meet with Chinese President Xi Jin Ping if requirement arises and was willing to interfere with Justice Department’s case against Huawei executive if it would benefit national security interests or help create a favorable trade deal with China.
- The US Dollar index (USD/DXY) which measures the strength of dollar against six major -global currencies is currently trading at 97.39 down by 0.06% on the day as positive comments from US President Trump on Sino-U.S. trade negotiation weakened US Dollar in broad market which was already pressured on dovish Fed rate hike forecasts.
- Following positive headlines from China & U.S.A and increased risk appetite in broad market, Asian and European equities traded with significant bullish momentum and key indices in Asian and European markets saw over 1% increase in value.
- Crude Oil Price saw positive price action in Asian and European market hours as increased risk appetite and positive price action in Asian markets along with news of easing tensions between China & U.S. hinted at possibility for demand to increase in Asian markets.
- Precious metals continue to trade sideways despite increased risk appetite in global markets as investors continue to maintain some level of caution owing to uncertainties surrounding European politics in form of Brexit and Italian Budget Woes resulting in some demand for safe haven assets amid subdued US Greenback’s value in broad market.
On The Lookout:
- Brexit – PM Theresa May pulled out approval of Brexit deal in parliament fearing a rout angering many members from her own conservative party. While EU representatives continue to stress there is no more room for re-negotiation, Lawmakers in Britain’s Conservative Party triggered a “no confidence” vote against PM May to which she responded that she would not resignand warned lawmakers that ousting her will not make getting a Brexit deal any easier. The vote over the prime minister’s fate will take place later today evening.
- Italian Budget – While news from early in the week hinted that EU & Italy were nearing a compromise on budget plans, France’s yellow vest protest put a dent in EU’s negotiations with Salvini and Di Maio refusing to agree to a 2019 deficit below 2.1%on news of President Macron’s promise for increased spending which went unopposed by EU. Meanwhile Italy could see an election in early half of 2019 as Salvini seeks to gain upper hand and break free from existing coalition agreement between League& Five Star citing ongoing budget crisis as reason.
- Sino-U.S. Trade talks – Optimism surrounding Sino-U.S. trade talks in on rise as news hit market that US President Donald Trump in his interview with Reuters stated that negotiation was proceeding in favorable direction and he is ready to intervene in Huawei executive’s fate if it would lead to benefit for American National Security or help come to agreement with China on a favorable trade deal. Also headlines from China indicates that the government is considering cutting import tariffs on American-made cars to 15 percent from the current 40 percent.
- Economic Data Release and Events – The calendar is relatively silent in major markets today. European market saw release of Industrial production data which saw positive outcome and now investors await Core CPI & Crude Oil Inventories Data from US market.
- US Indices – US stock market opened positive on Tuesday but the gains in major indices were capped on news of meeting between President Donald Trump and Democratic leaders Nancy Pelosi and Charles Schumer saw heated argument which led to Trump threatening to shut down government if no agreement on border security is reached. While S&P 500 and DOW 30 closed in red, NASDAQ managed to close positive for the day on gains made by heavy weights such as Amazon and Alphabet Inc shares. US indices are likely to take cues from international market and trade positive given high level of risk appetite in market today which is supported by positive macro data outcome.
- AUD/USD – The pair trimmed a major part of its early modest gains to fresh weekly tops but has still managed to hold just above the 0.7200 handle. Renewed optimism over improving US-China trade relations has been one of the key factors lending some support to Australian Dollar. However recovery rally is likely to lose momentum soon as upside move has faced resistance on repeated attempts indicating that bearish pressure might still be far from over.Weakness below the 0.7200 handle will find some support near the 0.7185-80 region (50-day SMA) below which the pair is likely to fall sharply towards 0.7150-45 support area, while the 0.7230 region acts as an immediate hurdle.
- USD/JPY – The pair holds in green for the third straight day as it continues to extend its rally from 112.23 to 113.51(week’s high) while US yields swing around depending on risk sentiment. Technical indicators are developing within positive ground and near daily highs albeit lacking directional strength. The positive tone is being reinforced by the fact that the pair has bounced sharply from its 100 DMA after a second attempt to break lower. Buying interest is now aligned at around 113.00, with the bearish potential set to increase only on a break below 112.55 handle.
