European open – Not so happy new year For stock markets

December woes carry into 2019

I think it’s safe to say that after a turbulent and all-round woeful 2018, investors across the globe will be hoping 2019 brings with it more stability and a return to winning ways for stock markets.

That said, the year has already got off to a disappointing start, with risk aversion weighing heavily across asset classes as the trend that battered confidence in the final month of last year carries over into this. Naturally, it was a rather quiet end to the year with nothing really changing on the fundamental landscape but unfortunately during that time of reflection, investors found no reason to be less pessimistic.

We saw a small rebound – primarily in the US – in the final days of the year but that move looks to have exhausted itself quite quickly. Trump – who always has one eye on the stock market – tried to offer some words of optimism on talks with China, tweeting that “big progress is being made” towards a comprehensive deal but that seems to have been taken for nothing more than an attempt to offer encouraging words at a time when no progress is being made on re-opening government and markets are slumping.

Risk appetite hit as 2019 gets underway

Dollar slump and risk-off trading sends gold towards $1,300

It seems that one thing many traders are in agreement on heading into 2019 is that it’s going to be a rough year for the dollar. A combination of factors are feeding into this view, with the changing position of the Fed being the most obvious. It has already dialled back its rate hike expectations for the coming year and it’s widely believed that it will do so again in the coming months, which could weigh on the currency.

This continues to be supportive for Gold, along with the overall risk-off environment that we’re currency experiencing right now. The inverse correlation with the dollar and safe haven status is very bullish for the yellow metal at the moment as its impressive fourth quarter – up more than 7.5% – looks set to continue with $1,300 not far away.

Gold Daily Chart

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This may provide temporary resistance but I’m not convinced it will hold for too long.

Gold takes investors on roller-coaster ride in 2018

Oil remains vulnerable but downside may be limited

This risk-off environment is also piling on the misery for oil, with Brent and WTI both coming under pressure once again today. Both are around 40% off their highs of only three months ago and continue to look vulnerable, albeit to a lesser extent than they have in recent months.

Slower global growth is clearly a strong headwind for oil but I wonder whether the doom and gloom is a little overdone and with OPEC+ seemingly committed to bringing balance back into the market, the bottom may not be far away. Traders may simply be waiting for some evidence that more output cuts will have the desired effect in a world where the US is increasing its dominance thanks to a booming shale industry.

Economic Calendar

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.