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Weekly Market Wrap 02-06/12/2019

Marius Paun | London, UK | Senior dealer | Friday, 06th December 2019

China Caixin November PMI came in at 51.8 versus consensus for 51.5 showing that despite 18 months of the trade dispute with the US, their manufacturing base is still expanding. Speaking of trade disputes…. Global times reported that Beijing still insists that tariffs should be rolled back as part of the so-called Phase One deal.

The US economy surprised the markets by adding 266,000 jobs in November. It was far better than polls had predicted, a gain of 186,000 jobs, according to numbers released by the Labor Department. At the same time, the unemployment rate declined to 3.5% from 3.6% previously with average hourly earnings risings 0.2%, less than 0.3% anticipated.

On Thursday the US President, Donald Trump, said the world’s two largest economies were getting closer to sign the phase one of a trade deal. That came after his comments made on Tuesday, where he expressed views that ‘it may be better to wait until after next year election before making a trade deal with China’. So shares started the week on the back foot but finished strongly. However, the reality is that tariffs an another $156 billion worth of Chinese goods are due to come into effect on December 15th. But the markets appear to view that as a problem for next week!

In the UK the latest poll indicated the Conservatives hold a comfortable lead of 10% against the opposition Labour Party, 42% vs 32%. With the country due to vote in the Parliamentary election in the coming week, it was good enough to push the pound sterling above the recent resistance of 1.3 to the US dollar. GBPUSD was trading around 1.3150 late on Friday.

European Commission promised to act like one after the US planned tariffs on French goods, some of which could reach 100%. The move came in retaliation after France introduced a 3% digital service tax which Washington sees detrimental, especially for American companies.

The Reserve Bank of Australia held its key rate unchanged at 0.75% as was widely expected. It added the global outlook is ‘reasonable but with risk tilted to the downside’. By and large, the statement was more of the same old rhetoric of; rates to say low for an extended period; inflation close to 2% for the next two year; and it stands ready to intervene if needed. Nonetheless, as the saying goes ‘no bad news is good news’, hence the Australian dollar moved higher, crossing above 0.68 to the greenback.

Bank of Canada also kept interest rates on hold at 1.75%, acknowledging that ongoing trade conflicts remain the biggest risk to the global outlook. However, it sees commodities prices and the Canadian dollar remaining relatively stable.

Meanwhile, OPEC members and their non-OPEC allies agreed to another set of production cuts by an additional 500,000 barrels per day through to March 2020. In effect that will reduce the group’s total output by 1.7 million barrels per day. Oil prices were slightly lower on Friday afternoon when the announcement was made.

Is there really a US-China trade deal on the horizon?

Marius Paun | London, UK | Senior dealer | Wednesday, 04th December 2019

S&P 500 retraced 0.7% to 3,093 on Tuesday, led by losses in chipmakers like Nvidia, Micron and Advanced Micro Devices. At its intraday low, the S&P 500 was 1.7% down with the move extending losses seen on Monday session. The reason behind the drop was a statement made by the US President Donald Trump, who said that ‘it may be better to wait until after the next year election before making a trade deal with China’. That rattled the world markets especially when the US is due to impose fresh tariffs on Chinese goods starting on December 15, just 2 weeks away.

But that was just the icing on the cake because alarm bells had already sounded a few days before. First, France introduced a 3% digital services tax (for the revenue generated in France) which the US immediately dubbed unfair for its tech companies. In retaliation, the White House announced it could impose duties of up to 100% on over $2 billion imports of cheese, wine, champagne and other goods. Furthermore, upset that Argentina and Brazil have ‘presided over the massive devaluation of their currencies which is not good for American farmers’, Trump promised to restore tariffs on steel and aluminium imports. Both countries have received waivers after the US imposed tariffs of 25% on steel and 10% on aluminium last year.

Going into 2020 Wall Street top strategists expect US-China trade progress to remain the key issue helping (or not) S&P 500. There are indeed risks in the form of geopolitical turmoil and overstretched valuations which limit the potential upside but being also an election year should offer some support if history is anything to go by.

S&P 500 was the second-best performer among the major asset classes (according to CNBC FactSet) which rose more than 20% in 2019, even allowing for Tuesday’s selloff. And one driver often mentioned in the press was the ongoing low-interest rates. During the meeting of late October, the US Federal Reserve cut interest rates by 25 basis points to 1.75%. When he was put in charge, Chair Jerome Powell appeared to signal that he will change course from the dovish stance adopted by his predecessors, Janet Yellen and Ben Bernanke. As the economy still grew, albeit at a slower pace, he wanted the October cut to be the last one. He also acknowledged that bar a spike in inflation, interest rates won’t be hiked for the foreseeable future.

But what really matters in the grand scheme is that the Fed has restarted the printing press despite dismissing talks of that being called quantitative easing. But the effect is hardly different (still easing monetary policy) and there was no hint if that was to be stopped any time soon. So, for all the shouting at him on Twitter from Donald Trump, Jerome Powell could be more of the same. It’s true that he does not entertain the idea of negative interest rates (Trump seems to be in favour) but any sign of markets distress and he comes to the rescue.

However, at the same time, record low-interest rates for more than a decade have fuelled a growing dangerous situation: rising debt and especially corporate debt. According to Bloomberg, there is now a record $250 trillion of debt worldwide which amount to roughly 3 times the global GDP. In the US alone the corporate bonds market is valued at nearly $10 trillion which is almost 50% of US GDP. Currently, debt funding is a lot cheaper than equity funding and it makes sense for corporates to borrow, rather than sell equity. And the promise to keep interest rates low can only exacerbate this trend.

The tricky bit is that if and when the economy starts to deteriorate, a snowball effect could be set in motion. The credit rating agencies will start downgrading corporate debt, which will increase the number of forced sellers and in turn will attract debt refinancing difficulties. Ongoing low rates are, for now, postponing the day of reckoning, especially for zombie companies bordering profitability but it will not stay like that forever. S&P 500 companies are in a better financial position but it’s hard to believe they would not be affected by the selloff if that scenario comes true.

On Friday the US will release its nonfarm payrolls report which is expected to show the economy added 186,000 jobs with the unemployment rate remaining unchanged at 5.5%. If those numbers are confirmed, or surpassed, then the S&P 500 could potentially attract buyers, as it would indicate the US employment market is still in good shape.

But what’s the chart show?

Overall S&P has been in a healthy uptrend with higher highs and higher lows. Additionally, the current market price is not far off the all-time high of 3157 reached on December 2. After making that new record high it had a bit of a retracement, but the rally looks set to resume.

What’s interesting is that the 9-week moving averages (red line) acted as good support attracting fresh buying power. Both moving averages, 9MA and 21 MA point upwards and the shorter one sits comfortably above the longer one. So the short, medium and longer-term outlooks are all bullish. However, if the second part of 2018 is to offer any warning, things can also turn to the downside rather quickly. S&P gave back over 600 points (more than 20%) during that period.

On the downside, we see support around 3070 followed by 3020 and 2950 but for now, as the saying goes ’the trend is out a friend’, so we can sit back and enjoy the ride.

Playing the waiting game on the potential US-China trade deal

Early in the week, Chinese newspaper Global Times put out a tweet saying that a broad agreement on phase one has been reached but there is still a difference of opinion on how much tariffs should be rolled back. To ensure that nothing in these negotiations goes smoothly, a bill on Hong Kong human rights that will automatically turn into law on December 3, was signed by the US. No surprise that China strongly condemns the act. All of which leaves some analysts baffled, especially in regards to the timing of the US actions.

What is interesting is that Hong Kong Government said it “strongly opposes and regrets the US president signing the bill of backing protesters”. On the face of it, they are still taking the China official view and are yet to be influenced by the recent election results.

Meanwhile, in the US, there were a number of the Federal Reserve members saying ‘the monetary policy is in the right place now’. Furthermore, the Beige Book, which is meant to give a snapshot of how the overall economy is doing, says the outlook remains generally positive. Consumer spending is growing at a stable to moderate pace with employment rising slightly.

As we approach general election day in the UK, scheduled for December 12, it probably makes sense to keep a close eye on the polls. One recent poll done by YouGov puts Conservatives in front at 42% versus Labour at 30%. And the view is that as long as the difference between the two stays within double digits, then expect the pound sterling to remain bid. A case in point for the past week with GBPUSD moving slightly higher, currently trading above 1.29.

Over to Europe where German manufacturing is still mired in contraction territory. However, there is fresh optimism that Christmas shopping might just offset part of those negative effects.

Elsewhere, Ursula von der Leyen has been officially confirmed as the next European Commission President. One of her priorities is combating climate change, which definitely does not match US President Donald Trump’s views on the issue. And her monetary policy dovishness doesn’t bode well with German Chancellor Angela Merkel. Damn if you do damn if you don’t. The EURUSD has closed the week rather flat, just above the 1.10 mark. Reduced liquidity in the forex market due to Thanksgiving Bank holiday in the US probably contributed to trading remaining locked in a tight range.

The Australian dollar moved slightly down for the week after assurances from the Reserve Bank of Australia’s Governor Phillip Lowe that his country is not considering QE-quantitative easing…. unless the cash rate gets to 0.25%. And surprise-surprise Westpac put out a prediction shortly after, saying the cash rate will be cut to 0.25% by June 2020, with QE to follow.

Ethereum and the world of Cryptos. Love them or hate them?

Part of the cryptocurrencies’ world, Ethereum was released in July 2015 and currently has a market capitalization of around $16 billion (according to www.coinmarketcap.com) second only to bitcoin ($131 billion). But what makes it rather different from bitcoin is its dual-use. It is both a cryptocurrency and a platform which enables other issuers to get their tokens to market. One example widely circulated is that Ethereum is for the crypto space what Google represents for the internet.

Currently, over 90% of all tokens are Ethereum based tokens. That means they don’t have their own platform and are created on top of platform cryptos, like Ethereum. So no surprise to see why so many people back Ethereum to take over eventually as the number one crypto despite bitcoin’s advantage of being the ‘firstborn’.

But why have cryptos have become so talked about? It’s because they could potentially solve the problem of trust. Cryptos cannot be forged, no one can send fake cryptos and you can’t pretend you have sent or received cryptos. And that’s because all the information is permanently recorded into a ledger called blockchain and is available for everyone to have a look. Furthermore, no one controls that ledger. It is created and maintained by users all over the world. Anyone can become a miner and there is no central authority to restrict or control the network. In other words, the blockchain is a decentralised ledger.

Since early 2009 when bitcoin was the first crypto to appear, things have evolved. For example, first-generation used blockchain to record financial transactions. The second-generation used blockchain to execute so-called smart contracts. They have been named that because they execute automatically without the need of a third party to verify them. Smart contracts bring more efficiency and transparency into the traditional world of deal-making and contract enforcement.

Let consider the following example; there is a business which provides a service. The customers pay for that service at a price agreed in advance, which is then delivered in a timeframe and according to a standard also previously agreed. That is the basic contract used in a traditional way.

Smart contracts automate the whole process which means faster execution, more reliable and fewer costs and the need for intermediaries is reduced.

Another big advantage for cryptos in general, and ether, in particular, is that in times of distress, portfolio managers will be on the lookout for uncorrelated assets to offer that extra diversity, and therefore stability; and cryptos offer just that.

However popular cryptos like bitcoin and Ethereum are, they still have a problem on their hands. They don’t scale very well. Which means there is a limit to the number of transactions or contracts that can be executed per second. Ethereum can only do about 15 transactions per second and, so far, the efforts to improve this has not borne fruits. As a comparison, VISA processes around 2,000 transactions per second on average and maxes out around 45,000. So if cryptos are to get wide-scale adoption, they need to address that issue rather fast.

To mitigate the risk from a prolonged trade dispute, China has been accused by the White House of embarking on devaluing its currency in order to maintain the competitiveness of its massive exports. Whether true or not, the Chinese know they cannot devalue too abruptly as that would potentially trigger a significant capital flight. How do you stop that?…. Capital controls….which for the world of cryptos means both an opportunity and a risk.

Recently Central Bank of China has announced its intention to crack down on blockchain which has sparked a sharp selloff for all cryptos. Ethereum reached a high of $1396 during early 2018 capitalising on the buying fever of late 2017 but has been on a downtrend ever since. It started 2019 around $135 and although at some point in late June it reached $350 it has retraced to $148.Clearly, the notoriously high volatility is still present in the crypto space!

The chart clearly points downwards with both short and medium-term moving averages pointing south. In addition, in August this year the 9 weeks MA crossed below the 21 week MA signalling further trouble.

On the downside, we can see support at $113 followed by psychologically important $100 mark. Above, $150 is the next immediate resistance. Then there is a tough hurdle at $190-$200 range.

We also note the $20 gap between low of July 12 ($261) and high of July 15 ($231) which eventually should be filled.

So fundamentally one can find plenty of reasons to consider the great potential for Ethereum and cryptocurrencies in general. Nonetheless, in the short term, it might be a different scenario at least from a technical point of view.

Weekly Market Wrap 18-22/11/2019

It appears that Fed Chair Jerome Powell met with US President Donald Trump at the White House to talk about economic growth, inflation and employment. On one hand, Trump tweeted ‘meeting was good & cordial’ and Powell just repeated his remarks from the Congressional hearing last week. Analysts became a tad suspicious, especially when shortly after, Trump said that if there is no deal with China the tariffs will actually be raised.

To make things worse the US Senate passed a bill to support Hong Kong protestors. Does the meeting with the Fed sounds like a possible warning or is it part of the tactic? Things were more confused when on Friday he reversed course yet again saying ‘a trade deal is very close’!!! Meanwhile, impeachment hearings don’t look very good for the White House as the US ambassador to the EU appeared to be confirming the quid pro quo i.e. conditioning US financial aid to Ukraine with investigating his rival’s son.

In the meantime, FOMC meeting minutes showed that the officials are currently reasonably contented with the level of interest rates and agreed that the economic outlook remained skewed to the downside.

In reaction, China reiterated that the US should stop interfering in matters in Hong Kong and threatened retaliation for the US supporting the bill. But on the other hand, also combining stick with carrot, China economists looked rather convinced that phase one deal is still on the cards to be signed before the year-end.

Back in the UK, the pound sterling started the week on the offence closing in on the 1.30 handle on the back of positive sentiment for Boris Johnson’s Conservatives. However, the election manifesto put forward by the Labour Party, which promised to nationalise everything from utilities, transport, health, postal and education system, sparked a reversal. Consequently, the GPBUSD looks now to be on course to retest support at 1.28.

Newly appointed as the chief of European Central Bank, Christine Lagarde had the first taste of what’s coming regarding her stance of a rather loose monetary policy. German Chancellor Angela Merkel said that no new debt remains the cornerstone for budget policy.

Sensing the danger, ECB chief economist Philip Lane came to the rescue saying the current inflation rate is ‘unsatisfactory’ and that ‘monetary stimulus will allow inflation to grow’. The euro is on course to end the week on the back foot after coming within touching distance of 1.11 to the US dollar.

The Reserve Bank of Australia’s meeting minutes were perceived as rather more dovish than initially expected to push the Australian dollar lower. The Board emphasized that it needs more time to assess the impact of the 3 cuts made earlier in the year before taking any further action.

Mirroring the central bankers around the world, Bank of Canada Governor Poloz appeared to have also hit the brakes. He commented in Toronto that the Canada economy is in a good place overall and ‘the monetary conditions are about right’. As a result, the Canadian dollar jumped to 1.3280 against the US dollar.

The Swiss Franc and it’s chequered past…

Marius Paun | London, UK | Senior dealer | Wednesday, 20th November 2019

The Swiss franc, the currency of Switzerland and its smaller neighbour state Liechtenstein, has historically been considered a haven. That is also the status of the Japanese Yen as the world’s biggest creditor and the US dollar as the currency of international trade.

There are a few reasons for these accolades. First is that Switzerland is considered an extremely well-run economy, a mature democracy with a positive trade balance and has a solid legal system. Secondly, traditionally it was a legal requirement for the franc to be backed by gold reserves. That backing was a whopping 40%, which in relative terms was a high percentage. The gold standard was terminated on May 1st 2000 following a referendum wand Switzerland was among the last countries to abandon that link. However even currently, a simple division of money supply to gold reserves puts that backing at around 20%.

So it is easy to see the Swiss francs’ appeal to investors, especially during the eurozone crisis. But as cash moved to Switzerland from struggling economies like Greece, Spain, Italy the franc soared considerably. In the process that started to hurt the Swiss economy by making exports less competitive. This, in turn, leads to a string of companies issuing profit warnings at the time and even threatening to move operations out of the country due to this increasing strength of the franc.

Consequently, on September 6th 2011 the Swiss National Bank took the decision to cap the franc against the euro at 1.20, thus capping its own currency appreciation. They added that they ‘are prepared to buy foreign currency in unlimited quantities’ (and sell their own currency). In reaction to that decision, which shocked the markets, the franc immediately lost 9% – 10% against the euro and the US dollar. Famously, the franc lost 9% against the US dollar within just 15 minutes. Nonetheless, the rally resumed shortly after and on December 18th 2014 the Swiss central bank had to introduce negative interest rates on bank deposits to support the franc cap, in a desperate attempt to reduce the demand for their currency.

However, important events on the global scene came back to bite the Swiss National Bank, showing that central bank intervention is a double edge sword. The debt crisis in the US and subsequent reactions in the euro area pushed their respective monetary policies to become more accommodative. Cutting interest rates to zero was not enough so central bankers resorted to something rather new – quantitative easing or QE.  In a few words, QE is large scale government bonds purchases to inject liquidity into an economy in an attempt to stop a deflationary spiral.

The QE program from European Central Bank was expected to weaken the euro and in turn force the Swiss National Bank to print even more francs to maintain the ceiling. Along with haemorrhaging currency reserves, there were widespread concerns that ongoing swiss franc printing would lead to potential hyperinflation. So shocking as it might seem, the SNB was forced to unexpectedly remove the peg of 1.20 francs to the euro on January 15th2015. The initial reaction saw the Swiss franc rallying a massive 30% against the euro and 25% against the US dollar. It caused chaos in the market and even forced a few foreign exchange brokers to close. The credibility of the Swiss central bank came under heavy questioning.

Interestingly enough those negative interest rates are still in place in Switzerland today!!! Recently, Thomas Jordan, Swiss National Bank chief expressed concerns about the fragility of the foreign exchange market saying they stand ready for further intervention as and when necessary.

Looking at the long-term chart in US dollar against the Swiss franc we notice the trend is by and large downward which means the franc appreciated for reasons given above. However, we can also see that since October 2011 USDCHF has been on a sideways trajectory. The price action was locked between the high of 1.0340 (tested in Nov-Dec 2015 and then again in Dec 2016, Jan 2017) and the low of 0.8290 in January 2015 (when SNB lifted the cap against the euro).

 

 

 

The 9 and 21 month moving averages have crossed each other a few times since 2011 but we know that without trending markets the signals may prove rather false.

On the way up, the first level of resistance is the psychologically important 1.0 level followed by 1.0100. Next, is the 50% Fibonacci retracement at 1.0170 from a high of 1.3283 touched on Nov 2005 and the low of 0.7066 reached on Aug 2011. Ultimately to change the intermediate outlook to bullish 1.0340 would need to be retested and eventually breached.

On the way down, the first support will be met around the 0.98 handles followed by 0.9660. Interestingly, both levels have switched a few times between support and resistance, proving reliable inflexion points. The 38.2% Fibonacci retracement at 0.9440 comes next. Further down the 0.9200 – 0.9250 channel was solid support which, when last touched, attracted enough buyers to spark a meaningful recovery. Ultimately, only a cross below 0.8290 will shift the medium-term trend from sideways to bearish.

 

Weekly Market Wrap 11-15/11/2019

The trade talks between China and the US encountered an obstacle again over agricultural purchases placing world markets on alert. Wall Street Journal reported that although President Trump wants China to buy $50 billion worth of soybeans, pork and other agricultural products, Beijing does not want to commit to attaching an exact figure to the deal. Both sides are also disputing the timing and the extent of lifting the tariffs on Chinese imports. In reaction, Trump said if there is no deal, he would raise tariffs significantly.

On another note, China industrial production for October came in at +4.7% versus expectations of 5.4%. At the same time, retail sales were also a miss, rising 7.2% versus 7.8% expected, thus pressing Premier Li Keqiang to highlight the need for more support for the real economy.

The US Federal Reserve Chair Jerome Powell testified before the Congress saying the monetary policy is appropriate and the economic outlook remains favourable. He added the data is not yet pointing to either labour market or inflation heating up but the lingering risk of a slowdown in global trade remained.

Back in the UK, the preliminary GDP data for the third quarter showed an increase of 0.3% versus expectations for a 0.4% rise. Although it was slightly weaker, the figures showed Britain managed to avoid recession amid all that hype of Brexit and/or general election uncertainty. The pound sterling moved higher as Brexit Party announced they will not compete in Tory Party held areas. Furthermore, on Friday afternoon GBPUSD broke above 1.29 when the same Brexit Party stepped down from 43 additional constituencies thus helping the Tories in their quest for a majority.

On Tuesday the major European stocks indices moved up, boosted by fresh news that Donald Trump administration plans to delay tariffs on European auto imports by 6 months. Some additional good news was Germany GDP data for the third quarter. Europe’s biggest economy narrowly avoided recession as the numbers showed an increase of 0.1% versus predictions for a 0.1% drop.

The EURUSD traded within a tight range of fewer than 80 pips for the whole week and looks set to post only a marginal increase (around 1.1050 Friday afternoon).

In a surprise decision, the Reserve Bank of New Zealand held its benchmark interest unchanged at 1% sending the NZD sharply higher. RBNZ cut 50 basis points at the August meeting but this time they said, ‘if things deteriorate will keep cutting but there is not enough information to go lower now’.

Lack of volatility in oil prices. But is this about to change?

If anyone needed stone-cold proof that crude is out of fashion at the moment, they only need to look at the market’s reaction to last week’s oil news.

Last Monday on the 4th of November, in the United Arab Emirates, the Supreme Petroleum Council announced the discovery of new hydrocarbon reserves estimated at 7 billion barrels of crude and 58 trillion standard cubic feet of conventional gas. The find is in the category of ‘elephant size’ bringing the UAE’s total reserves to over 100 billion barrels of crude and over 270 trillion cubic feet of conventional gas.

In order to understand the size of this find in context, we can compare it with other oil fields. The biggest one, Ghawar in Saudi Arabia has some 90-100 billion barrels of reserves and the second one, Burgan in Kuwait also has around 70 billion barrels of oil. But have a look at the rest of the top 20 oil fields and most of the oil fields have between 15 and 30 billion barrels of reserves. So, the discovery was big enough to move the country one place up from the seventh to sixth place in terms of oil and gas reserves.

Following the announcement, one could expect the crude price to spark a sell-off. But it did not, if anything it went up a little and by and large it has been trading sideways ever since.

Looking at global oil consumption, we currently use around 100 million barrels per day. We also know that world demand amounted to about 85 million barrels per day in 2009, so oil consumption rose by around 17%-18% in the last decade. Given all the noise around the trend to alternative energy, subsidies going into renewables and the whole political pressure to switch from fossil fuels to green energy by 2030 or so, you might expect oil consumption to have fallen. But that is not the case, at least not yet, and data continues to show rising demand in crude almost every year.

On a side note, the US government data showed last Tuesday that for the first time since 1978, the US recorded a $252 million surplus in oil trade. The value of US crude exports was just under $15 billion while imports were $14.7 billion. So where does this leave the much-trumpeted Saudi Aramco IPO-initial public offering?

The world’s biggest oil and gas company has finally decided to go public, sometime in December. Gulf news reports that Crown Prince Mohammed bin Salman said he wants a $2 trillion valuation, thus looking to raise funds to diversify the Saudi economy away from oil by investing in non-energy industries especially high tech. Saudi Arabia hopes to float only 3% of Aramco and as a result to raise $60 billion.

Now if the history is anything to go by when Glencore went public in 2011 it marked the top of the commodities cycle. Additionally, when Barclays and RBS both went after ABN Amro in 2007 it marked the peak of the banking bubble. Ironically the winner (RBS) of that deal proved to be the big loser in the end as the extra debt came back to haunt them. The conclusion is that only irrational exuberance associated with the market top can convince investors to back such a massive deal.

But as we showed in the beginning, this IPO seems unusual in that it is being proposed when crude prices are nowhere near their record highs; in fact, quite the opposite. So that makes the process look like an IPO done out of necessity. So, if this is not the top of the crude market, could it be the bottom? Only time will tell but last week US oil drillers cut an extra seven oil rigs bringing the total countdown of operational rigs down to 684, the lowest since April 2017.

It is widely argued that lingering uncertainty over US-China trade relations is keeping a lid on oil prices. Last Friday brought renewed concerns as President Trump downplayed reports of an imminent lift of tariffs as part of a ‘phase one’ agreement. That rumour had originally boosted markets during the previous few sessions. However, the constant back and forth on the trade disputes seems to be trumping any other fundamental news.

Below is the price of US crude oil prices over more three years. It’s currently around $57.40 a barrel.

We can see two strong areas of support around $42.50 and more recently from June this year to October it held its ground just below $51.00 support base. The latter also matches 23.6% Fibonacci retracement from a high of $76.79 seen on 30th of September 2018 and a low of $42.42 touched on 23rd of December last year. So, while crude enjoyed a rebound since September, on a medium-term basis is still on a downtrend trajectory.

Immediate support is seen around $56.00 mark which during the current year shifted between support and resistance quite a few times. Further down $54.50 and $53 are also levels to watch.

On the way up, resistance around 58.50 level will be the next target followed by the 50% Fibonacci retracement at $59.65. Bulls will then keep an eye for $62.5 to $63.00 area. But only a break above the $66.55 mark, the high of 23of April this year will convincingly change the medium-term outlook to sideways.

The short-term moving averages (9 MA) seems to be on course to cross above the longer-term one (21 MA) which should be encouraging for the bulls.

Weekly Market Wrap 04-08/11/2019

Although the tension between China and the US appears to be thawing somewhat, there are still bits to be agreed before they sign the Phase One deal. For example, China would like the 15% tariff imposed by US President Trump on September 1st to be removed whereas the US wants China to buy $50 billion worth of agricultural products. China Global Times added that ‘both countries must simultaneously remove the existing additional tariffs at the same ratio’. Donald Trump is yet to make a decision on the subject.

China continues to strengthen ties with European countries. During President Macron’s recent visit to Beijing, aircraft engineering was on the table with Airbus ready to become a competitor for Boeing in China.

The happy days for the US stock indices have returned as all 3 majors made record highs. It seems that investors’ sentiment improved, shrugging off uncertainty from the US-China trade war. Aligning this with the very good reporting figures, where over 75% of the US companies have surpassed expectations so far, has meant that the risk-on mood has certainly made a comeback in the US stock markets.

Back in the UK, it’s now official that the country will go to the polls on December 12 to elect a new Parliament. Although some analysts on both sides are trying to convince the public it is about a lot more than Brexit the fact that both sides have lined up big spending plans is saying, in fact, Brexit will be the main deciding topic. Polls suggest that, so far, the Conservatives have managed to maintain their lead and pound sterling has been rangebound 1.28-1.30 to the US dollar.

Meanwhile, the Bank of England left the bank rate unchanged at 0.75% although surprisingly 2 out of 9 members voted for a cut. They justified their action by saying that ‘stimulus is needed as data suggests the labour market is turning and the downside risks from the global economy still linger’. However, the short-term pullback was quickly reversed and the currency remained in the previous range.

Despite disappointing numbers coming out of Germany, the EU largest economy, for quite a few months, optimism in the region does not seem to fade. They continue to deny the need for any sort of fiscal stimulus so much so that some analysts are calling European decision-makers either daydreamers or foolishly overconfident… Only time will tell, but a case in point is the German press quoting EU’s ex-President Junker saying that ‘Donald Trump will not implement auto tariffs on EU automobiles. Trust me, I know what I’m saying’!!! We shall see who is right.

As widely expected, the Reserve Bank of Australia held its benchmark interest rate at 0.75% but added that it stands ready to ease policy if needed. They also said the outlook was little changed from 3 months ago with inflation expectations around 2% for the next year and unemployment dropping below 5%.