Caution returns on US-China trade uncertainty

12 November, 2019

Caution is set to dominate financial markets on Tuesday as investors juggle with trade uncertainty and tensions in Hong Kong.

The general tone of markets remains cautiously optimistic over the United States and China signing a “phase one” trade deal. However, this sentiment continues to be tested by conflicting signals as US President Trump last Friday dismissed China’s claim that the US will roll back tariffs on Chinese imports as part of an interim deal. These types of mixed  signals from US-China trade talks is not only fostering confusion but weighing on global risk appetite as investors move to the sidelines.

  • Market mood sours on US-China trade concerns
  • Pound elevated by Brexit party decision
  • Oil dips on conflicting trade war signals

Asian stocks struggled for direction on Tuesday following the mixed performance of Wall Street overnight.  Slow progress on the US-China trade could rekindle global growth concerns ultimately spurring risk aversion. Given the lack of clarity offered on trade developments, all eyes will be on President Donald Trump who is scheduled to speak to the Economic Club of New York later today. Any fresh hints on progress in trade negotiations will be warmly received by investors.

Pound turbocharged by rising chances of Conservative majority

Sterling bulls were injected with a renewed sense of confidence on Monday after Nigel Farage said his Brexit party will not contest Conservative seats in the upcoming election.

This development certainly comes as an early Christmas gift to Boris Johnson as it raises the odds of a Conservative majority being secured at the December election. The prospects of a Conservative victory breaking the Brexit deadlock and offering direction is likely to support the British Pound in the near term. Away from Brexit, Britain’s economy avoided a recession in the third quarter of 2019 by expanding 0.3% but the annual pace of growth was the slowest in almost 10 years at 1%. Given that the Pound offered a muted reaction to the report confirms how the currency remains heavily influenced by the election and developments in Westminster.

Looking at the technical picture, the GBPUSD is bullish on the daily charts. A solid daily close above 1.2890 should see a push towards the psychological 1.3000 level. Alternatively, sustained weakness below 1.2890 may trigger a decline back towards 1.2790.

Crude Oil moved by trade developments

Crude oil prices struggled for direction on Tuesday amid fears about the outlook for energy demand thanks to uncertainty around US-China trade talks.  Although there is some measure of cautious optimism over trade talks, mixed signals from both sides could strain global sentiment and investor confidence. Given how Oil bulls and bears remain heavily influenced by growth and demand concerns, further losses could be on the horizon should trade uncertainty persist.

Focusing on the technicals, WTI Crude is under pressure on the daily charts. Sustained weakness below $57.50 should encourage a decline towards $57.00 and $56.00.

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