Will risk appetite resume in the week ahead?

So far, earnings from the big U.S. banks have been mixed

Hussein Sayed, OpinionIndustry Expert
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.

July 16, 2018

The S&P 500 rose 1.5 percent last week for the second week in a row, reflecting the return of risk appetite and putting the trade war noise in the back seat. The index is currently up 4.8 percent year-to-date and trading above the key level of 2,800. Whether the rally in equities will be sustained this week will likely depend on multiple factors including earnings, politics and monetary policy.

So far, earnings from the big U.S. banks have been mixed. J.P. Morgan Chase, Citigroup, and Wells Fargo all saw their shares decline after reporting results on Friday. However, out of the 5 percent of companies who announced actual results, 89 percent of the S&P 500 companies managed to beat EPS which sounds encouraging. Investors shouldn’t just focus on Q2 figures but also on the guidance for coming quarters, especially given that the stronger Dollar and trade worries may start having a negative impact on forecasts.

Last week, the U.S. proposed fresh tariffs on $200 billion worth of Chinese goods; China still has yet to respond to the new threat which is likely to dominate the headlines again. It will also be interesting to see if today’s E.U. - China summit will lead to a stronger coalition between the two economic powers as both continue to struggle with Trump’s administration.

The summit between presidents Trump and Putin will also take centre stage today, especially after 12 Russian agents were indicted in the Mueller Investigation. The summit also comes after Trump clashed with his NATO allies last week in Brussels over their defense spending policies. It’s hard to expect the outcome of the meeting, but the U.S’ current European allies are certainly worried.

Investors and traders will also keep a close eye on Fed Chair Jerome Powell, who will deliver his semi-annual testimony before Congress on Tuesday. Although he’s likely to remain upbeat on the U.S’ economic growth prospects, he still needs to address how central bank will react if the ongoing trade disputes escalate further in the coming months. Any signs of slowing down the pace of interest rate hikes will drag the Dollar lower.

Sterling will face a new test today, as Theresa May's Brexit strategy will be put to vote in Parliament. Brexiters want May to change course on her strategy, which has already led to several resignations from senior Tories. Although May is not likely to be defeated in this vote, a high number of opposition is still likely to undermine negotiations going forward.

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: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.

The FXTM brand provides international brokerage services and gives access to the global currency markets, offering trading in forex, precious metals, Share CFDs, ETF CFDs, and CFDs on Commodity Futures. Trading is available via the MT4 and MT5 platforms with spreads starting from just 1.3 on Standard trading accounts and from 0.1 on ECN trading accounts. Bespoke trading support and services are provided based on each client’s needs and ambitions - from novices, to experienced traders and institutional investors. ForexTime Limited is regulated by the Cyprus Securities and Exchange Commission (CySEC), with licence number 185/12 and licensed by the SA FSB with FSP number 46614. Forextime UK Limited is licensed with the UK FCA, number 777911. FT Global Limited is regulated by the International Financial Services Commission (IFSC) with license numbers IFSC/60/345/TS and IFSC/60/345/APM.

Any opinions expressed here 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.