Knockout week for markets
It’s going to be a very interesting week for financial markets, with an abundance of major economic events to come as well as earnings and trade talks between the world’s two largest economies.
The week gets off to a slightly quieter start and yet we still have inflation – core PCE, the Fed’s preferred measure – income and spending data to come from the US. We’ll also get earnings from a dozen or so S&P500 companies, including Alphabet which reports after the market close. In any other week, this is probably the standout day but this week, not so much. There’s much more to come in what is going to be a knockout week, after which we should have a much clearer view of where markets stand.
Oil prices continue lower after Trump comments
Oil prices are on the decline again on Monday, extending the declines that we saw on Friday which came after Donald Trump claimed to have spoken with OPEC an demanded they bring prices down. First thing to note here is that this is not the first time Trump has talked about oil prices and pointed the finger of blame at OPEC. He’s also repeatedly tried to influence OPEC’s decision making when it comes to output but there’s been no evidence that it’s been in any way successful.
So why are markets paying so much attention now? They’re not really. Oil prices were looking very overextended to the upside and Trump’s comments – intentionally or not – provided the perfect opportunity to cut exposure and allow the market to correct. That’s why we’re seeing such a decline, not because the market suddenly expects OPEC to be guided by Trump’s outbursts. Still, WTI faces a very interesting test around $60.50-61.50 area, where the 200-day SMA crosses prior support and resistance.
A big week for uncertain gold market
Gold is trading a little lower at the start of the week, perhaps a sign of early profit taking after the yellow metal popped higher on the back of the US first quarter GDP data. It may have been surprising to see gold rallying in the aftermath of the data – given that the economy grew 1% more than markets were expecting – but the underlying numbers were far less impressive and pointed to weaker data in the quarters ahead.
We remain in a very uncertain period for gold though. On the one hand, the environment is primed for gold to come under more pressure – dollar is strong, US equity markets around record levels, earnings season outperforming – but when we broke through $1,280 two weeks ago, any downside momentum quickly faded. Not an encouraging sign for those that saw a break of a four month support level as a bearish signal.
That said, the dollar is relatively flat today and yet gold is off around a quarter of one percent. Profit taking on the back of such a brief jump higher could be a sign of weakness. It also came around the 50% retracement from the April peak to trough, which could key a bearish technical signal for gold. In a very interesting week for the dollar and therefore gold, we may not have to wait long to find out.
