Mid-Day Update: Partial Trade Deal, Lira volatility, Oil, Gold

The US and China were able to make a partial deal, setting up hopes for a prolonged trade truce. The positive trade update took US stocks are higher and is putting the pressure on safe-havens.  The deal is tentative and subject to change as President Trump gets ready to meet with Chinese Vice Premier Liu He later today.   Presidents Donald Trump and Xi Jinping could finalize this partial deal later today.
US equities could resume the march toward uncharted territory if we see continued a de-escalation in all tariffs over the coming weeks.  Optimism is likely to remain in place and we could start to see the outflows from safe-havens help trigger a major emerging market rally.  The bottom could be in place for the US dollar, but traders will still require more concrete progress in trade de-escalations.

Lira volatility stemmed from the Trump administration decision to get fresh sanctions ready on Turkey.  Treasury Secretary Mnuchin noted they will not move forward with them just yet, but the call seems like a contradiction to this week’s earlier decision to pull back some US forces from Northern Syria.  Earlier the lira sold off after President Putin noted some Islamic State prisoners could escape as a result of Turkey’s military attacks in Syria.   The situation in Turkey has yet to yield a major market reaction, but if we US sanctions enforced, that could be a game changer.

The initial surge with oil prices after an Iranian tanker was hit by missile was somewhat short-lived as markets remain focused on the near-term outlook for demand.  The blame for the missile attack was initially placed on Saudi Arabia, but that has been somewhat rescinded.  Saudi Arabia has yet to react to the September drone attack.  The attack most likely came from either the Saudis or Israelis.
The situation in the Middle East is likely to remain tense and markets are eagerly awaiting the Iranian response which could come as a cyber or military attack.
Adding fuel to the fire that is the tensions in Middle East was the news that the US will send about 1,800 troops to help defend Saudi Arabia.
Oil prices should be supported on tensions from the Middle East and a boost to demand forecasts on growing optimism we will see a major de-escalation in the US-China trade war.

Gold is holding up relatively nicely despite the wave optimism that stemmed from the news that the US and China have reached a partial deal.  Safe-havens are getting crushed here as Treasuries yields surge and both the dollar and yen tumble.  Gold is barely holding onto the $1,480 level and we could see further pressure towards the $1,450 level.
The demand for gold is likely to remain strong despite the initial risk appetite markets are seeing.  Global growth concerns will take time be alleviated and central bank stimulus is likely to see buyers emerge on this pullback.

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.