It’s shaping up to be another flat session on Tuesday, with European stocks a mixed bag and US futures showing little directional bias.
The week is heavily loaded towards the backend, which is largely the reason why we’re seeing this kind of fence sitting from investors. Tomorrow alone we have the ECB meeting, Fed minutes and emergency EU Brexit summit, while later in the week earnings season kicks off and the UK may – probably not – leave the EU without a deal. It’s hardly surprising that investors aren’t getting too excited by a bunch of tier two or three economic data.
The broader macro stories continue to tick along in the background but we haven’t seen any major developments. There’s clearly a renewed desire to get the US/China trade deal over the line but little indication when that will actually happen. As ever, the timing isn’t as important as the deal itself, and market participants have certainly learned to be patient in recent years.
Biggest week yet for Brexit...until the next one
Brexit drama may be ramping up and desperation kicking in, but traders remain in quite a relaxed mood as we navigate through another hugely important week in the process. May has gone on the charm offensive to Germany and France today as she attempts to win around the EU’s two most important leaders to her extension plan, leaving her willing deputies at home to continue negotiations with the Labour Party which forms the basis of the PMs justification.
The cynic in me continues to think that the talks between May’s team and Labour is just for the cameras, with both sides keen to be seen doing everything to avoid no deal Brexit and deliver on the referendum result, while convincing the EU to agree to only a short extension. Scaring hard-line Brexiteers that are yet to back the PM into falling into line could be the cherry on the cake, although this could still not be enough.
An extension is inevitable though, it’s just a question of how long the EU will give May to get Parliament’s backing.
Gold buoyed by Trump remarks on QE and interest rates
Gold is back on the rise and testing the water above $1,300 this morning, buoyed by a stumble in the dollar as Trump once again weighed in on territory that previous Presidents have steered clear of. Trump called on the Fed to cut interest rates and conduct more quantitative easing in order to support the slowing economy, an odd request for extraordinary measures at a time when unemployment is only 3.8%, jobs growth is strong and growth is decent.
I doubt Trump is going to rein in these demands going forward, which could heap further pressure on the dollar and support the yellow metal. That said, the recent trend is against it and unless we break back above $1,325 – roughly the March high – gold will continue to look vulnerable. We’re still some way from those levels yet though and near-term it’s the greenback that’s actually looking vulnerable which could be good news for gold bulls.
Oil surges ahead of OPEC and IEA reports
Oil is pushing higher again on Tuesday, with the rally in the last couple of sessions taking us through technical resistance and providing a further catalyst for gains. Brent stumbled at $70, but not for long, while WTI is now running into resistance around $65. Dollar weakness may be contributing to the surge, while the potential for supply disruptions in Libya may also add to the bullish case.
It promises to be an interesting week for oil though, with the usual inventory data being accompanied by reports from OPEC and IEA which should provide additional insight on the latest production numbers and expectations for demand.
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