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Fear Could Linger After Toasted Trade Deal

By City Index (Ken Odeluga)ForexDec 06, 2018 17:19
uk.investing.com/analysis/fear-could-linger-after-toasted-trade-deal-200205073
Fear Could Linger After Toasted Trade Deal
By City Index (Ken Odeluga)   |  Dec 06, 2018 17:19
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Summary

The market’s verdict on the trade deal will take more than Beijing and Washington platitudes to shift.

Extended ‘over-reaction’

On the face of it, the 550-point collapse in Dow futures that immediately followed news that a senior Huawei (SZ:002502) executive had been arrested looks like an over-reaction.

The second half of the European session sees indices barely off Thursday’s worst, keeping the STOXX gauge close to a fresh two-year low, its second since late October. The Dow gushes another 400 points lower.

Close relation

The velocity of these declines looks past ostensible disconnects between Huawei and the trade dispute. True, the company is publicly owned, and the case involves alleged sanction violations. But Huawei’s state links are hardly a secret.

Decades-long affiliations have smoothed the regulatory permissions it required to become the world’s second-largest smartphone maker in just over 30 years. The arrest of Huawei’s chief financial officer, the daughter of founder, Ren Zhengfei, a former People’s Liberation Army officer, won’t pass as ‘unrelated.’

November gains almost wiped

Price action over the last 12 hours, which erases almost all late-November gains on Wall Street, Shanghai/Shenzhen and in Europe is the market’s verdict.

Furthermore, Huawei recently lost authorisations in the UK, New, Zealand, Australia and the States. Its participation in major new international transactions could also be definitively over.

Anticipation of a messy extraction from contracts, partnerships, supply chains and more, keeps technology sector upset on par with tumbles in trade-sensitive car, and metal shares.

Elsewhere, OPEC and Russia appear to hint at a smaller cut than the market would like, dragging energy sectors. That’s all broad equity segments under a cloud. Already upended by Treasury yields’ acceleration to three-month lows, volatility in major currency pairs remains unsettled too. Volatility goes up a notch as safety bids reappear in dollar, the yen and bunds.

‘Fear gauge’ still tethered

With Friday’s payrolls in view, soft readings in the run up, including ADP’s private assessment add to cross-market gloom. That will deepen if official data also disappoint. The extradition hearing of Huawei’s arrested finance chief is also scheduled for Friday.

So, one way or another, CBOE’s Vix Volatility Index may have backing to extend a three-session run higher. Should it approach peaks around late 27-29 on the way to the round 30, feedback into aversive sentiment could intensify. In reality, that may be a fairly big ask.

Since its second biggest one-day vault of the year in October, the ‘fear gauge’ has been active, but relatively restrained. Still, open questions on everything from Brexit, oil, trade and more, offer ample conditions for vol. to go up a gear in the week ahead.

Daily CBOE Vix
Daily CBOE Vix

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.

Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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Fear Could Linger After Toasted Trade Deal
 

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Fear Could Linger After Toasted Trade Deal

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