Equities rally after moves on trade, Hong Kong elections
Asian and European markets rallied early
Monday after some more positive steps on trade, whilst the fallout from Hong
Kong elections on Sunday will need to be closely monitored for their impact on
the protests and risk sentiment.
On trade, it’s the usual Washington
two-step – one step back, another step forwards. The picture on trade remains
rather muddy, not least because of the incendiary situation in Hong Kong that
is becoming increasingly ‘economized’, but the latest developments will likely
lend support for risk.
Over the weekend US national security
adviser Robert O’Brien said a ‘phase one’ trade agreement with China was still
possible before the end of the year, but added that the White House would not ‘turn a blind
eye’ to events in Hong Kong. Earlier, Donald Trump had said the protests and
the response from Beijing had ‘a tremendous negative impact’ on the trade
Cue a landslide victory for pro-democracy
candidates in local elections in Hong Kong which saw a record turnout. The
pro-democracy candidates controlled all but one of the 18 districts it seems.
This is a humiliation to Beijing – there is no silent majority backing Carrie
Lam and co – it will only embolden the protest movement further, which of
course carries risks for investors.
But we’ve had progress in an important
area – China has appeared to relent to a degree on intellectual property, a key
sticking point to the talks thus far. Beijing on Sunday said it will increase
penalties for IP violations, and lower the bar for criminal proceedings to be
brought in cases of alleged IP theft. This could be an important step forward,
but we as ever will only believe it when we see it. The focus is on
agreeing some kind of phase one deal before the Dec 15th deadline
for about $150bn in tariffs to raise.
Last week, US indices snapped a six-week
win streak but did manage to rally Friday. European indices were also strong
risers on Friday.
Friday saw a big pullback for the euro as
the US dollar rallied heavily. Today we have the German Ifo business climate
report, which may threaten to knock a few spots off the euro again. We also
will be keeping an eye on Jerome Powell’s speech later.
EURUSD was at 1.10260 and
eyeing the support at 1.0990, a break of which would call for a pull back to
around 1.0950 and then the Oct low at 1.0880.
USDJPY just won’t roll over
entirely and was last at 1.0880, seeking again to surmount 1.09 and the 200-day
line first at 1.0890. The 50-day line is offering support around 108.275.
GBPUSD is trapped in its range
between 1.28 and 1.30 – expect it to remain so. Polls indicate the
Conservatives are stretching out – one poll over the weekend shows the Tories
with a 19-pt lead with 47% of the vote. This ought to lend support but we await
to see whether the dollar can extend gains posted on Friday.
Oil – The uptrend remains in
force as markets eye a potential expansion of crude output cuts by OPEC. Net
longs increased to 430k contracts according to Friday’s COT report from the
CFTC. Upside break to $58 on Wed/Thu has not been sustained entirely but the
200-day line around $57.50 starts to offer support.
Gold – bearish trend persists
with the rally off the $1445 low rather lacklustre and losing its mojo early.
But speculative long positions increased in the last CFTC report to net
+285.9k. As traders bulk up on long gold positions it may indicate the market
is poised to retrace some of the recent drop.