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European open – Trade, Boris, Deutsche, Oil, Gold

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Europe flat despite trade hopes

Europe is looking a little flat ahead of the open on Wednesday, failing to capitalise on the positive momentum that lifted stocks in the US and parts of Asia overnight.

Source – Thomson Reuters Eikon

Sentiment was buoyed late on Tuesday by reports that US trade negotiators will head to China on Monday for face-to-face talks. While there’s obviously no guarantee that anything will come from the talks, it’s clearly a positive development that suggests both sides believe progress can be made. And lets face it, anything that brings hope in this increasingly murky environment is always welcome.

As ever, it feels like it’s two steps forward and one step back on the trade front though, after EU Trade Commissioner Cecilia Malmstrom claimed the block has tariffs prepared if the US follows through on threats to slap them on European cars.

The US has so far held off on getting involved in a full blown trade conflict with the EU, probably due a desire to not fight a trade war on two fronts. But it’s not like Trump to shy away from a tussle and these comments may just trigger a Twitter backlash against the EU.

Pound steady as Johnson prepares to enter Number 10

Boris Johnson’s ambitions to be Prime Minister have long been known but today, he will finally enter into number 10 and begin his bid to take the UK out of the European Union. His victory probably comes three years later than he expected but the man repeatedly claimed prior to the referendum that he had no desire to be PM, probably enters Downing Street in a much better position than he otherwise would have.

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Much of the mundane details of the split have been agreed on by Theresa May’s team and there is now a sense of desperation from Brexiteers that very much suits him. Now he just needs to get the EU to back down on issues he previously claimed were straightforward or drag Parliament out of the block kicking and screaming without a deal. Simple.

The pound has been relatively flat since the announcement, highlighting just how much his victory was already priced in. We haven’t yet seen any profit taking kick in though which may be traders waiting to see the make-up of his cabinet or could signal ongoing nervousness around the risk of no-deal under his leadership. The sell-off has lacked momentum in recent weeks which may suggest the former but I’m sure that will become a lot clearer in the coming days.

Deutsche Bank posts huge second quarter loss

Deutsche Bank posted a larger than expected €3.1 billion loss in the last quarter after the banks profits took a massive hit from the huge restructuring efforts that will include 18,000 staff being let go. The bank claims that without the charges, net profits would have been €231 million, still shy of the €401 million a year earlier, but that a substantial portion of the restructuring costs will be absorbed in the quarter. The restructuring is a big and expensive gamble for the bank but one that many have thought necessary for some time.

Oil steady despite huge inventory drawdown

Oil prices are steady on Wednesday, posting small gains after quickly absorbing the latest inventory data from API which reported a massive 11 million barrel drawdown. This came on the back of the trade news which was already positive for risk appetite and oil and yet, traders appear reluctant to be too bullish. Perhaps traders are just in a more bearish mindset right now following last week’s tumble and more evidence is needed for that to change.

Brent Daily Chart

Gold losing its shine for now

Gold is posting small gains in early trade after a challenging few days for the yellow metal. While the broad consensus continues to be that this is a bullish environment for gold, near-term factors have taken the shine off it. Whether that’s improving risk appetite or a rebound in the dollar as traders reluctantly accept that we won’t see a 50 basis point cut from the Fed this month, gold is coming under a little pressure and may continue to do so near-term.

Gold Daily Chart

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Former Craig

Former Craig

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
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