By Deepta Bolaky
December started on a positive note, though it was short-lived. During the G20 meeting, there was more optimism in the financial markets than the market participants had anticipated. Investors were therefore hopeful that December would be promising.
Post G20 Reactions – Bullish Gaps
Monday started on a buoyant note with a few bullish gaps, and risk sentiment was revived. The dynamic in the financial markets had changed, and investors entered the last month of the year with more confidence.
(Daily Charts: WS30, NDX100, DAX30, US5OO, FTSE100, and CAC40)
An inverted yield curve and lack of details around the trade truce deal have halted the upbeat tone in the financial markets. The yield spread between the 3-yr and 5-yr Treasuries dropped to -0.1 on Monday, triggering a massive sell-off due to rising fears of a recession. At the same time, investors were worried that a muted China regarding the ceasefire was bad news.
(Hourly Charts: WS30, NDX100 and DAX30)
(Hourly Chart: US dollar Index)
Aside from trade headlines and the fears around the inverted yield curve, Brexit news dominated the markets. A meaningful Parliament vote is scheduled on the 11th of December, and there was much new information for market participants to digest.
The GBPUSD pair swung up and down, depending on the headlines. Any gains appeared to have been capped by the downtrend line. The pair has also broken key support levels and dropped to August lows. It briefly attempted a break outside the descending line.
Fundamentals are weak, and investors reactions seemed to be more pronounced. Sparks in the markets are either bringing relief or igniting the fears.