Risk appetite quickly disappeared after President Trump announced he would address China tomorrow at a press conference. It didn’t take much to help traders rush to exits. Aggressive short positions have been growing for the S&P 500 index and it seems intensifying tensions between the US and China will be the catalyst to derail some of the reopening momentum that drove a vast majority of stocks higher.
This is not just a US-China spat, as the rest of the world is showing frustration over Beijing’s decision to impose a national security law in Hong Kong. The UK, Australia, Canada, and United States issued a joint statement formally expressing their concern over China’s actions.
Wall Street is getting nervous that President Trump could be quickly nearing the nuclear option of fully revoking special economic and legal privileges granted to Hong Kong. This was always a fear, but it didn’t seem like that would be an option this side of the Presidential election.
Oil prices pared gains after President Trump’s press conference announcement. For the crude demand outlook to continue to improve, the energy market needs China and the US to get along. Oil prices have been rising higher as reopening momentum continues to support calls for an improvement with demand. The oil market is still working its way to balance and could be vulnerable to the downside on any hints that oil-producing nations are quickly ramping up production.
An imbalance issue for gold at the New York exchange is providing an unwanted headache just like we saw with oil last month. Steep discount with future contracts are happening as lockdowns make it harder for delivering supplies. Investment demand is strong for gold, but delivery is not what these investors want. Gold will not see a historic plunge, but could see limited upside with the escalating tensions between the US and China.
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.