|18 November, 2019

Trade headlines remain market's key driver

Hussein Al Sayed is the Chief Market Strategist for the Gulf and Middle East region at FXTM, and host of the popular evening business show on CNBC Arabia, Bursat Al Alam. Prior to his current role, Hussein spent many years working in the finance sector as a dealer, trader and analyst in equities, credit and foreign exchange markets. He holds a BA degree in Banking and Finance from the Lebanese International University and is experienced in both technical and fundamental analysis.

Website: http://fxtm.co/1XgYw2A

Positive headlines from US and Chinese officials are still driving equities higher

  • Trade optimism continues to support equities
  • China cuts rates on seven-day reverse repurchase agreements
  • Markets awaiting FOMC minutes on Wednesday

US equities rallied last week to new record levels with the Dow Jones Industrial Average breaching 28,000 for the first time. Soft economic data, Trump’s impeachment hearing, Hong Kong protests, and Middle East unrest were all considered secondary factors in investment decisions. Anticipation of a “phase one” trade deal between the largest two economies continued to be the major driver for stock markets.

Despite no new information on what the trade deal looks like or when and where it will be signed, positive headlines from US and Chinese officials are still driving equities higher. Late Thursday, White House Economic Adviser Larry Kudlow said, “we are coming down to the short strokes.” China’s Vice Premier Liu He had a phone call on Saturday with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, which has been described as “constructive discussions” according to state media outlet Xinhua.

From past experiences, it’s the final stages of the trade agreement where things get stuck. It remains to be seen whether this time we’ll get a breakthrough, but if no agreement is reached, expect to see a nasty selloff in risk assets.

China’s central bank decision to cut rates on seven-day reverse repurchase agreements also supported risk taking. The move by the PBOC reminded investors that there’s still monetary tools available to support the economy.

Currency traders are also monitoring trade talks closely. According to the latest CFTC report, speculators raised their bullish bets on the USD, but given the weaker than expected US data, particularly industrial output which dropped to its worst level since May 2018, the greenback sold off against its major peers.

Expect major currencies to remain in tight ranges until the release of the minutes from the Federal Reserve’s October meeting on Wednesday. During his testimony to US Congress last week, Fed Chair Jerome Powell reiterated his message that the current stance of monetary policy remains appropriate as long as incoming information about the economy remain consistent with their outlook of moderate economic growth and a strong labor market. 

Powell seemed to convince markets that there isn’t a fourth consecutive rate cut coming in December. According to the CME FedWatch Tool, speculators are seeing zero chance of a rate cut next month. However, they still expect a high probability of easing in 2020. What traders would like to know from the upcoming FOMC minutes is what thresholds are required for additional easing in the upcoming months.

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

* Any opinions expressed in this article are the author’s own

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© Opinion 2019

More From Markets