Investors nervous about US/China talks
Equity markets are trading back in the red on Thursday, as hopes of a deal between the US and China were quickly dashed, albeit not squashed altogether, making the next 48 hours of talks all the more important for markets.
If people’s worst fears are realized and talks break down altogether, the market impact could be significant. One of the reasons we’ve seen such an incredible recovery from the fourth quarter sell-off has been the belief that it’s a case of when, not if, a deal will be reached. It was heavily priced in. The global shift from central banks towards a more accommodative stance has also been a major factor that could limit some of the downside but a breakdown in talks would be a massive blow.
Thankfully, a complete breakdown is not one of the more likely outcomes of this week’s talks. That’s not to say that we won’t see more tariffs imposed but the lines of communication will likely stay open. As it stands, the best likely outcome is probably a delay in tariffs and continuation of talks. That may temporarily support markets but the intensity of negotiations will have to be ramped up.
Oil back in the red after inventory bounce
Oil prices are back in negative territory in early European trade after being given a temporary boost a day earlier as EIA reported an expected inventory drawdown of just shy of four million barrels and overall risk appetite improved on the prospects of a deal. Those hopes were obviously short-lived as we found out later in the session and now we’re back in wait-and-see mode as talks get back underway.
With all eyes on Washington and no oil-related data due out until tomorrow, prices may now continue to simply reflect the swings in risk appetite that driving much of the market right now. Despite the shifts, we continue to trade around the recent lows which fall on a notable area of support for Brent and WTI – around $69-70 and $60-61, respectively – with a break of these potentially being the catalyst for sharper declines.
Gold on the rise again as trade stress kicks in
Gold is experiencing some safe haven demand again on Thursday, but continues to struggle around $1,290 where it failed to hold above yesterday. The late sell-off on Wall Street roughly coincided with the lows in gold yesterday and that buying pressure then picked up in Asia overnight as equity markets moved further into the red. Clearly anxiety over the potential breakdown in negotiations between the US and China – and the prospect of further tariffs from both sides – is taking its toll.
Obviously, risk appetite may experience a sudden u-turn over the next couple of days if the two countries work out their differences and new tariffs are postponed or cancelled altogether which would pressure gold prices, which further feeds into the uncertain outlook between now and the end of the week. A close above $1,290 could be a bullish signal for the yellow metal though, with $1,310 above here being the next area of interest. The lows around $1,265 is the obvious support zone below if talks improve, along with risk appetite.
