We’re in risk aversion mode in the markets as investors prepare for the prospect of tariffs on Friday rather than a trade deal between the world’s two largest economies.
The breakdown in talks has really caught the markets off-guard. It seemed a deal was just widely accepted and basically priced in. Now we’re left wondering whether it will happen at all and what impact more tariffs will have on the global economy and markets. The next few days could be massive.
Gold bulls given a new lease of life
Gold is seeing some safe haven support today with a slightly softer dollar also giving it an extra lift. The yellow metal is yet to break through the peak from a couple of weeks ago – around $1,290 – but gold bulls will be very encouraged by recent price action. The failure to break below the low last week was a sign that the trend had weakened – as was its failure to pick up any real momentum after breaking below $1,280 – and now price action may be giving some bullish signals.
A break above $1,290 could see $1,310 once again come back into focus, which coincides with the April peak. It’s worth noting that this doesn’t necessarily spell the end of the gold sell-off but just that the correction may be earlier and deeper than you would typically see. The potential breakdown in trade talks between the US and China naturally doesn’t help risk appetite and has given gold bulls a new lease of life.
Risk appetite hits oil prices
Oil prices are not having much fun in the current risk environment either which shouldn’t come as much of a surprise considering global growth fears and their impact on risk are intrinsically linked to future oil demand. It’s one of the often more overlooked drivers of oil prices but the correlation is clear. Oil has been on a slide since Trump claimed to have called OPEC regarding oil prices, which came at a time when the market was already looking rather stretched to the upside.
We’ve seen a bit of a corrective move since then – just shy of 10% - but that may increase. We’re currently trading at a very interesting level – around $69-70 in Brent and $60-61 in WTI – a break of which could signal more pain to come. Given the recent shift in risk appetite, this is perfectly feasible.
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