US – China Trade Truce boosts Risk Appetite - The Industry Spread

Nikolas Papas

Nikolas has been involved in the finance industry for over fifteen years spanning across Europe and USA with a depth of knowledge and experience within many aspects of the financial markets. Nikolas gained several years experience with some of the Europe’s leading Brokers, as equity analyst, and trader managing accounts for both Private and Corporate Investors. He enjoys both the fundamental and technical aspects of trading focusing on stock markets and all FX majors. Currently Nikolas provides analysis and comments to online financial publications. Educational background in Economics (BSc), and Finance (MSc).

US – China Trade Truce boosts Risk Appetite

December 4, 2018

Positive tone around European markets as the 90 day trade truce between China and USA during the G20 meeting in Argentina washed off investor worries and send the indices higher with German Dax 2.4% higher, FTSE100 +1.80% and French CAC40 +1.9%.

Asian stock exchanges ended the Monday trading session with strong gains, with both the Shanghai Composite and Hang Seng in China rising by 2.6%. In Japan, the Nikkei225 gained 1.3% to reach six-week high.

All major currencies are trending higher against the Dollar in early European trade Monday. EURUSD opened with a gap higher at 1.1359 (Friday’s close at 1.1312). The pair tested the 50-hour MA at the daily high level of 1.1379 but without success. Currently the pair is trading to the lows of the European session, below the 200-hour MA at 1.1345, threatening to erase daily gains and resume the downward pattern. European Monetary Union Market Manufacturing PMI came in at 51.8, above expectations (51.5) in November.

After climbing to fresh daily highs above 1.2820, GBPUSD has now lost initial strength and is now trading in 1.2730 area. The manufacturing Purchasing Managers’ Index (PMI) in United Kingdom arrived at 53.1 points in November, as compared to a previous 51.1 reading. Analysts had predicted the PMI to tick higher to 51.5. Investor’s attention will be on Brexit and the debate in the House of Commons starting tomorrow; while the key vote on PM May’s deal is expected next week.

James Smith, Developed Markets Economist at ING commented:

“Interestingly, a slight rise in domestic new orders was the main driver of improvement, helped partly by ‘client stock-building’. It’s not immediately clear how much of this trend is down to Brexit, but we imagine at least some of it can be attributed to firms building up stocks as ‘no deal’ uncertainty rises. The question is – can this continue over the winter?”

“It’s hard to see how far manufacturing firms can go in terms of stockpiling goods/components ahead of March. Warehouse space is already extremely limited, partly because of the growing

prominence of internet shopping. According to Savills, the vacancy rate in London is just 3%, and we suspect it is likely to be more constrained for specialist or perishable goods which have more specific storage requirements.”

“We don’t expect the Bank of England to hike before May 2019, and there’s a risk that this date might be pushed back further if the Brexit story goes to the wire.”

Gold price jumped at $1232.20 per ounce highest level since November 7 early Monday as traders responded to weaker US dollar. Investors are also continuing to react to last week’s dovish comments from U.S. Federal Reserve Chair Jerome Powell.

US stock futures are also holding near the highs, indicating the key benchmark indices would shoot up by about 2% after the Monday opening bell.

A busy day in the macro front will be for US investor’s today:

The major report is ISM Manufacturing PMI. It is expected to come in at 57.5, slightly below the previously reported 57.7.

Minor reports include Final Manufacturing PMI, Construction Spending, ISM Manufacturing Prices and Total Vehicle Sales.

Fed Chair Powell was scheduled to testify on Wednesday to a congressional Joint Economic Committee, but the hearing is expected to be postponed to Thursday because the major U.S. exchanges will be closed on Wednesday in honor of former U.S. President George H.W. Bush, who died on Saturday at the age of 94.

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