European open – Trade war, Brexit, gold, oil

Investors buoyed by trade war hopes

European stock markets are expected to open higher on Thursday, following a phone call between the US and China that paved the way for more negotiations next month.

Source – Thomson Reuters Eikon

As ever, the announcement is not without confusion, with the Chinese Commerce Ministry claiming that both sides had agreed to meet in Washington in early October while the US side only confirmed that the phone call had taken place. Investors are nevertheless buoyed by the comments as it at least opens the door to talks to end the trade war that has already plagued the global economy.

I am less optimistic as I don’t believe either side has reached the point of desperation that will likely lead to compromise and a deal but I guess this is better than the lines of communication being closed altogether. The consequences of the trade war are there for all to see, just look at the PMI surveys we’ve seen this week, but I’m not convinced that is enough.

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Sterling buoyed but the fight isn’t over yet

Boris Johnson has had a terrible start to his tenure as Prime Minister, with attempts to stop Parliament preventing no-deal on 31 October instead reinvigorating MPs and uniting them against him and his cabinet. I don’t think anyone in Parliament has truly covered themselves in glory throughout this process and so an election, whenever that may be, is the most logical next step. It won’t necessarily lead to a better outcome though.

The pound was buoyed by proceedings over the last couple of days, although it is paring some of those gains in early trading today. No-deal is still deemed the worst Brexit outcome, as far as markets are concerned, despite an acknowledgement by BoE Governor Mark Carney that it is now a less severe threat than it was. Successful attempts to block it have therefore been well received but I fear Boris has a few more cards up his sleeve. The fight isn’t over yet.

GBPUSD Daily Chart

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Gold struggling but that may quickly change

Gold has once again pulled off its highs, having failed to break through $1,560, as risk-appetite improved overnight reducing the appeal of the safe haven. This is a major psychological barrier for the yellow metal and once again the rally was built on low momentum which may ultimately lead to a larger correction.

That said, when risk-appetite is being lifted by factors that could easily be short-lived, its appeal could quickly return and with it, momentum. Bulls seem reluctant to let go and that’s understandable given the current environment and the fragility of what’s holding it back.

Gold Daily Chart

Oil lifted by risk-appetite

Oil prices remain range-bound, despite yesterday’s rally which was driven by the improvement in risk-appetite. We’re back at the upper end of that range though, which is where we are now seeing some profit taking again. API reported a modest increase in inventories on Wednesday which failed to do much for oil prices, perhaps today’s EIA release will be the catalyst that takes us out of these ranges.

Brent Daily Chart

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