High-beta Rally on Trade Deal Optimism

High- beta currencies had their day in the sun as global growth worries faded after better than expected came out of Europe again and trade negotiations between China and the US appear to be gaining steam.  Bloomberg reported that the potential trade agreement reached between China and the US would aim to give Beijing until 2025 to meet commitments on commodity purchases and allow American companies to wholly own enterprises in the Asian nation.  Both sides appear to be ironing the final details and if we do see a final summit set up for President Trump and Xi, risk assets may accelerate higher.

Nasdaq – Golden Cross supports move higher

MXN – Trump considers border-closing options

Brexit – No Deal Risks Fade 

Oil – Wobbles after inventories surge

Gold – ETFs see outflows as growth worries ease

Nasdaq

Trade optimism pushes Nasdaq higher near six-month highs and into a golden cross formation.  The bullish trend pattern occurs when the 50-day moving average climbs above the 200-day moving average.   Stocks are currently benefitting from a trifecta of bullish catalysts:  The Fed is on hold and they will probably need to second quarter data before addressing any changes in policy.  China and the US appear to be getting closer to a trade deal.  Lastly, global growth concerns are starting to ease as we are starting to see better data come out of Europe.

Earnings season is quickly approaching, and markets may see significant volatility as negative earnings growth is being priced in.  Many portfolio managers are underperforming their benchmarks and we could see heavy flows.

MXN

The Mexican peso gave up all of its gains after reports that the Trump administration is still considering closing the border with Mexico.  The negative financial impact has many Democrats and Republicans concerned, but that may not dissuade the President at all.  Mexico is the third largest trading partner for the US.

Trump’s banter appears more politically motivated as he has not delivered on his 2016 campaign promise to secure the border.  Mexico has been in constant discussions with the US on keeping the border open and the Trump’s threats appear to be aimed at making Mexico move faster on reducing the number of border crossings.

Brexit

Another late night of Parliamentary voting saw MPs vote to prevent a “no deal” Brexit on April 12^th.  The first round of votes was 315 to 310.  The second round of voting occurred deep into the London night.

Earlier in the day, PM May and Labour leader Jeremy Corbyn tried to settle on a Brexit compromise.  Initial reports suggested the talks were constructive, but later reports noted they did not go as well.

The British pound remains strong as traders appear convinced no-deal Brexit risks will disappear soon.

Oil

Crude prices fell to the session lows after the EIA weekly crude inventory report showed supplies climbed by the most since January.  A build of 7.24 million barrels, was well above the consensus for a small draw, and exceeded the highest estimate which was for a build of 2.4 million barrels.  Some oil traders quickly shrugged off the move, noting that the shipping delays in Houston were hurt from a chemical storage fire.

American oil production rose to 12.2 million barrels last week, while demand appears to be steady as gasoline and distillate supplies dropped more than expected.

If we continue to see trade progress or improving German economic data, the demand side argument for higher crude prices could support further bullish momentum for oil prices.

Gold

Trade optimism is seeing investors abandon the SPDR Gold Shares fund (GLD) trade, as $671 million left the $32 billion ETF this week.  Financial markets are almost certain a trade deal is on the horizon and with the recent round of surprising positive data from Europe, safe-haven assets are falling out of style.

Gold continues to respect the $1,300 handle and if we see prices fall, key support may come from the $1,280 level, with deeper support residing at the $1.250 region.

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