US can reach a deal with China
Equity markets could see a dead cat bounce
WTI bearish bets are at their lowest level since 2014
European markets and US futures are trading higher as traders are hopeful that the US Treasury Secretary, Steven Mnuchin, may help them to save the day. If the US can reach a deal with China, it will avert the need to impose sanctions of $50 billion of good from China. The French GDP is also helping in maintaining the positive momentum. It matched the estimates of 2.5% in 4Q y/y.
It is fair to say that the optimism that traders had about the Trump administration had diminished fairly rapidly and even his plans for infrastructure spending which was supposed to spur some risk on trade has mostly failed. The bounce which we are experiencing in equity market could only be a dead cat bounce. It would only be a matter of time when we will see the negative impacts of these events trickling into the economic data and that would only create stronger compounding effect.
It certainly looks like a Cold War, instigated without any doubt by the US. China wasn’t going to sit on its hand and watch the show without any reaction. If China ramp ups matter further and it starts to take aim against larger US corporations such as Apple and Boeing, we could see the sentiment getting further hammered.
Oil
While Donald Trump is doing what he does the best; firing and employing. This is creating more uncertainty. President Trump picks up a former American ambassador to the United Nation as his security advisor. In simple terms, there would be more pressure on Iran and Trump is more likely to withdraw from Iranian nuclear deal. Oil traders are not going to be reticent with their bets.
If the US imposes the sanctions once again on Iran, there would only be a one-way trade for oil. Looking at the chart, the bearish bets are at their lowest level since 2014 while bulls have ramped up their bets last week by 7.7% which is the highest level since January.
Forex
In terms of currencies, Sterling traders are going to focus on the talks which are geared towards the Irish border. The idea of the hard border and checkpoints being installed between the U.K. and Northern Ireland is highly unpopular. Any talks which favour a hard broader between the U.K. and Northern Ireland may have an adverse impact on the currency.
Gold
Geopolitical uncertainty is gathering further momentum as president Trump is preparing a meaningful number of Russian diplomats from the US. Gold traders are watching the developments around this carefully and despite a massive move in the gold price last week, the odds are still skewed in favour of another similar move this week. Having said that, the gold price is taking some rest before it firmly breaks the resistance of $1350
