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Trade jaw jaw, another Boris defeat buoys sterling
Positive news on trade sent a rocket under
equities globally and supported risk appetite, but we need to be
cautious. US futures shot higher on the news and now we look towards a possible
breakout for the S&P 500 following this announcement. It’s been
building for a while – if this doesn’t last and the rally fades it would be a
bearish signal (see below chart). SPX finished 1% higher yesterday at
On trade – we’re getting more jaw jaw, but just as much
war war as
before. The news of face-to-face high-level talks between the US and China next
month has been seen as a positive but needs to be taken with a good dose of
salt. It wasn’t that long ago the market was rallying as we thought a deal
imminent, now it’s moving on nothing more than confirmation of
talks. It highlights the headline risk that
traders must contend with and suggests there is very little by way of a strong
trend in the markets right now, just a lot of short-termism and uncertainty. A
trade deal is a long way away.
European markets are firmly higher on trade
optimism. Asia was broadly higher as it responded to better news on trade, Hong
Kong and the lead from Wall St yesterday.
Despite the ‘positive’ trade news, German factory orders betray the
kind of softness we are dealing with. Factory orders came in at -2.5% versus
On Brexit, Boris Johnson lost in his
attempt to force an election but can still get his way – remember his goal
is not Brexit deal or no-deal per se, but power. And to
have power you need a Commons majority. He wants the election.
Labours position is so disingenuous – for two years they call for an election
and now they run away.
There are a couple of ways we still get to an election in
mid-Oct. Once this bill receives Royal Assent we
could see the Opposition agree to an election. This would still be falling into
the trap but at least they’d have the legislation in place. It would appear
right now that Labour is prepared for this following the late-night deal in the
Lords to ensure the bill passes through the upper chamber in time. If this
doesn’t happen the government could have introduce a bill on having an election that requires a simple
majority in the House.
Sterling has been buoyed by Boris’s suffering, but
event risk remains high. GBPUSD has pushed to a week high but ran
into resistance at 1.2260. The pullback needs to find support around the round
number 1.22 level and then retest 1.2260 to suggest there is sustainability.
Bulls’ big target is the late August swing high at 1.230. Bears will look for
the area around 1.2150 to be taken out on the downside. Elsewhere the dollar has held lower on stronger
risk appreciate, trade optimism. EURUSD has held its head above 1.10.
Oil – moving with risk – held in check by top trend
line resistance of the triangle formation that’s apparently nearing
completion. Oil inventories today provide the main risk – a day late this week
due to the Labor Day hols.
Gold has benefitted from dollar softness whilst the
yield outlook remains highly supportive. Prices moved through the $1550
resistance towards $1560 but have pared gains and retreated to just below $1547
at send time. Bulls will look for rescaling of $1550, whilst bears may consider
the rising trend support line at $1543 and then the previous swing low around
the $1535 level.
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