Financial markets are bracing for a busy week of earnings and possible trade progress between the world’s two largest economies. The focus at the start of the week remains heavy on the political side as protests in Hong Kong continue for a sixth consecutive week and as Japan’s national elections are expected to see Shinzo Abe become Japan’s longest serving prime minister.
The trade war has dealt a strong blow to global growth concerns and markets could see positive news at the start of the week as Chinese companies are seeking tariff exemptions. The sudden interest in following through on purchases may have stemmed from President Trump’s threat last week that he will impose additional tariffs if he wants. If we see China begin to follow through on their G20 sidelines promise, we could see the US follow up with some leniency on Huawei. Both sides don’t want to admit, but they are politically motivated to wrap up this trade deal this year.
Roughly a third of the S&P 500 will report this week and it could get messy as we will see a bulk of technology, industrials and energy earnings reports. The best performing sector so far this year has been tech and this week we will get updates from Amazon, Alphabet, Facebook and Intel. The start of earnings season has been very positive, but the price action on the major indexes has not been. It appears markets are waiting to break and this could be the week that happens.
Protests in Hong Kong are not fading away and the disruption that this is delivering will continue to derail bankers and entrepreneurs from growing business there. The suspended extradition bill needs to go away or we could see a wrath of business move to Singapore. Hong Kong’s financial district is just as important to Beijing and it may be only a matter of time before they decide to concede defeat this time.
Japan got the election result they needed, Shinzo Abe will remain in power, falling short a supermajority, which means he will take aim at only supporting the economy and not trying to deliver constitutional change. Abe was set on changing a pacifist Constitution that has been in place since American occupiers created it in 1947. The final count is due later tonight, but NHK is projecting the LDP and Komeito won 69 or the 124 seats.
Energy traders will look to see if geopolitical risk can help crude prices stabilize. Falling global demand and rising US stockpiles have helped turn oil charts very bearish, but that may not last as tensions remain high in the Persian Gulf. If Iran keeps on seizing tankers in the Strait of Hormuz, the risks to military conflict will grow.
Oil could see some support early this week as Libyan crude output dropped to the a five-month low as as an unidentified group closed the country’s largest valve. Libyan production is now around 1 million barrels a day after the force maneuvers at Sharara lowest just under 300,000 barrels a day.
Gold is going to struggle advancing unless this week’s wrath of tech giant and industrial earnings trigger a significant pullback. Large technology stocks have been the best performer in 2019 and if we see markets disappointed with the outlooks from Amazon, Alphabet, Facebook and Intel, investors will think twice before holding on to major equities positions until we get further clarity from the Fed at the end of the month. Geopolitical risks from the Persian Gulf could provide some support for the yellow metal, but the next major move will likely be if the Fed is dovish enough for markets.
Bitcoin volatility could ease over the next week as markets become paralyzed from the over analysis of what Facebook’s Libra currency will do to the regulatory environment for cryptocurrencies. The galvanized regulatory interest will take years to take form and we could see pressure on smaller weaker coins benefit the giants of Bitcoin. If Bitcoin can continue to stabilize this week, we could see bullish momentum return as sellers will continue to unwind short positions.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.