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Markets Pare Losses As Weekend Draws Near

By Market Pulse (Craig Erlam)Market OverviewOct 12, 2018 10:59
Markets Pare Losses As Weekend Draws Near
By Market Pulse (Craig Erlam)   |  Oct 12, 2018 10:59
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  • Indices rebound
  • Oil
  • China trade data

Stocks pare losses as we head into the weekend

Investors look set for a day of reprieve on Friday, as futures and Asian trade overnight suggest we’re not on course for a third day of a selling frenzy.

Stock markets in Asia overnight have rebounded fairly well, with indices posting decent gains, although this does little to change the narrative of the week which has been quite brutal for investors. While everyone has been desperately trying to explain what the catalyst for the sudden and sharp sell-off was, the fact is that there is clearly underlying vulnerabilities and it didn’t take much for investors to flood for the exit.

Perhaps this is just a necessary and normal correction but the scale of the losses in such a short period of time are worrying. We may be seeing a paring of those losses heading into the weekend but that doesn’t give me any real confidence that markets won’t start next week in much the same manner as they’ve spent much of this.

Oil 1% higher as traders test the water following 8% decline from last week’s peak

Oil has been fully caught up in the frenzy over the last couple of days, with the sell-off possibly providing an ample opportunity for those that have profited from its more than 20% gains over the last couple of months alone, to lock in some profits. I don’t think it’s changed the view of many that oil could have further to run, rather they may see the last couple of days as being a blessing given the levels we’re now at.

Oil (WTI and Brent) Daily Charts
Oil (WTI and Brent) Daily Charts

Brent and WTI are around 1% higher on the day after falling around 8% from last week’s peak. Whether they can build on these gains will depend on how risk appetite holds up over the course of the day and, more importantly, on Monday once everyone has had an opportunity to absorb the events of this week and decide whether there’s any substance to the sell-off or it’s just a knee-jerk overreaction that presents opportunities.

China posts record trade surplus of $34.13 billion with the US in September

For all the talk of trade wars being easy to win, the trade data we’ve seen this morning suggests it may not be quite so straightforward. It would appear that when you throw a floating exchange rate into the mix – a sensitive issue in itself after the Treasury department found China not to be a currency manipulator, despite Trump’s constant claims to the contrary - the surplus country can be quite well shielded from tariffs while the deficit country will face quite the opposite reality.

This would appear to be particularly true when the deficit country’s economy is boiling hot and tax reforms mean the consumer has a few extra dollars in their pocket to throw around. While this trend isn’t expected to continue as the tariffs become increasingly harsh, more consumer goods are thrown into the mix and pre-emptive order flow passes, it will no doubt be infuriating Trump and pleasing those that oppose such measures.

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Markets Pare Losses As Weekend Draws Near

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Markets Pare Losses As Weekend Draws Near

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