News & Analysis

Weekly Summary – High Profile Arrest Reignite Trade War Fears

December 7, 2018

By Deepta Bolaky
 @DeeptaGOMarkets

After a hectic week with plenty of headwinds piling up, investors are bracing themselves for a volatile end to 2018. Without any doubt, fundamentals are weak, although the rout in the financial markets this week was mostly driven by external factors that are hitting the markets one after the other.

High Profile Arrest – Tech Rout

The high-profile arrest of Huawei’ CFO came at a time where markets participants were hopeful that there might be a breakthrough on trade. The level of optimism post-G20 meeting faded very quickly as traders were debating the lack of details and conflicting information from the US and China. The arrest is now overshadowing the prospect that trade tensions may ease.

The markets were way deep into the oversold area. Wall Street took a beating but managed to recover strongly on the back of the Fed’s “wait-and-see mentality”, according to The Wall Street Journal concerning the Fed’s rate.

W30, US500 and NDX100 (Hourly Chart)

Source: GO MT4

The arrest has also not been easy on Asian stocks. A technology rout and renewed trade fears are painting a bearish outlook for the stock markets in Asia. Thursday’s sell-off in the European markets were more pronounced compared to the US, as the slide was fuelled by domestic political issues.

  • US Markets: Dow -0.3%, S&P 500 -0.2%, Nasdaq 0.4%
  • European Markets: FTSE -3.1%, CAC -3.3%, DAX -3.5%

The allegations of the technology transfer are worrying investors. There are many issues which are keeping the markets on edge, but the arrest is currently taking centre stage and may be the spark that can soon reignite fears.

Bond Market

We cannot ignore the current movements in the bond market. The inverted yield curve (3-yr and 5-yr yields) may be sending a recession signal to the markets. Inversion does not always mean a recession, but was enough to divert investors’ attention back to the yield curve risk. The probability of a downturn in the coming years has risen significantly.

Economic Data

The economic calendar was relatively busy this week. However, trade and geopolitical tensions took centre stage. The two major events on the data front were the Australian GDP figures and the Bank of Canada’s Rate Statement.

  • Aussie data releases were mostly on the weak side. The GDP figures were the biggest miss and took the market by surprise as the Reserve Bank of Australia (RBA) was upbeat about slow levels of growth in GDP. The financial markets are less convinced that the next interest rate move will be higher.

AUDUSD (Hourly Chart)

Source: GO MT4

As widely expected, the Bank of Canada left its interest rate unchanged at 1.75%. However, the Canadian Dollar took a beating on the dovish growth prospects. The USDCAD pair was pushed to its highest level since June 2017. The massive sell-off in oil prices are also fuelling the slide in the Canadian Dollar.

USDCAD (Daily Chart)

Source: GO MT4

Brexit

Brexit headlines have been flowing across the week. With a meaningful vote scheduled on the 11th of December, investors were overwhelmed by the turnaround of Brexit. The uncertainties are mounting, and Pound trades were struggling to take a decisive position. The Sterling pairs are trapped by Brexit jitters as volatility around the Pound is at its highest level.

OPEC Meeting

The OPEC meeting is crucial in determining the direction of the oil markets. However, Thursday’s meeting was a non-event and ended on a confusing note without any agreement on the production cuts. Oil prices tumbled as OPEC has pushed discussions to Friday. The suspense around the production cut is mounting given that Russia may not agree to a substantial reduction. Despite briefly dipping below $50 level, WTI is finding support around that region.

All eyes will be on the key developments around the OPEC meeting, Huawei and the Non-Farm Payroll Announcement.

 

Monday, 10 Dec 2018
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0 0 0.02 0.077 0 0 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 0 0 0

 

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