European update – Trump, Hong Kong, UK, gold, oil

Investors Desperate For Trade Deal

European stock markets are retreating today and the US is poised to follow, with Asia overnight also seeing a sea of red.

Source – Thomson Reuters Eikon

I don’t think we should read too much into today’s declines, especially when sentiment is being so regularly driven by various trade war headlines, tweets and speculation. Trump’s appearance on Tuesday was clearly a rehash of the usual rhetoric and threats to raise tariffs if a deal isn’t achieved is hardly anything new.

The unrest in Hong Kong is clearly taking its toll on regional markets, with the Hang Seng again tumbling 1.82%. The situation is clearly becoming more intense, with protests now taking place throughout the week and there’s still no end in sight.

UK politics overshadows data again

Once again this morning, the UK data has been brushed aside with the minor issue of an election and Brexit shockingly dictating what the currency does. This morning it was October inflation data that was overlooked, despite the headline number slipping 0.2% to 1.5%, further falling below the Bank of England’s 2% inflation target.

This was largely due to movements in energy prices which can be volatile, which explains why the core reading was unchanged. Not really a game-changer in today’s environment. Ultimately, whether the central bank cuts or hikes will depend on where we stand on 1st February and the data will likely change on the back of this as well.

A YouGov poll showed Boris Johnson’s Conservatives extending their lead over the Labour Party following the Brexit Party’s decision not to compete in the 317 seats is already holds. If Boris can now convince them to also stand aside in leave seats the Conservatives don’t occupy but could win, that may widen further. Although that may come at a cost and if both sides refuse to engage, the cost may be Brexit itself.

Source – The Times

Gold pares losses but further downside may be ahead

Gold is edging higher on Wednesday, buoyed by the dollar’s pared gains and its safe haven appeal. It found support yesterday in the $1,440-1,450 region, which was also a key area earlier this summer when prices were on the way up.

I’m not convinced we’ve seen the end of the declines in the yellow metal, with $1,400 being the next test if $1,440 falls. With risk appetite generally improving, the near term outlook for gold may be tough, especially if the US and China can get an agreement over the line. That’s a big if though.

Gold Daily Chart

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Oil in the red as sentiment slips

Oil prices are naturally sensitive to shifts in sentiment so it’s no surprise to see them coming under a little pressure today. Especially as the drop-off seems to be tied to the latest trade headlines, despite them being a rehash of the old ones.

The API inventory data will provide a temporary distraction from that today. Last week saw a larger than expected increase reported, another this week may add to the downward pressure on crude, although with Brent above $60 still, that’s not the end of the world.

Brent Daily Chart

Economic Calendar

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Craig Erlam

Craig Erlam

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.
Craig Erlam