It’s a new trading week, but the central themes remain the same, with unresolved issues surrounding Brexit as well as US-China trade talks to once again be clouds circling over the global financial market. The prevailing risk-aversion that we have seen over the last month could be on display again until such time as we see progress particularly on the trade front.
Market reaction up until this point has clearly indicated that a trade war between the two largest economies would not be a welcome event to say the least, so any news that negotiations are stepping up between now and the G20 summit (when President’s Trump and Xi are scheduled to meet) could be a boon to risk-assets.
It was another tough week for global equities, with the risk-off mood of the market resembling much of what we saw in October. The DJIA managed a triple digit gain on Friday, but for the week it was still down over 2%. Tech stocks continue to trade in heavy fashion, with investors rotating positions out of this sector and into more defensive positions.
But if global equities have had a tough time of late, this is nothing compared to the shocker of a week for the crude oil price, with the WTI contract closing lower for the 6th week in succession. Oversupply concerns will again be at the forefront of the commodity market this week, although growing speculation that OPEC will announce production cuts at its December meeting has given some respite to the oil price, which recovered on Friday to close at $56.83 per barrel.
With OPEC and Russia apparently not on the same page when it comes to reducing oil output, the WTI price action looks set to remain choppy at best in the lead up to the December meeting. More immediately, the release of the next US Crude Oil Inventories data on Thursday (US time) this week could pose further problems for the oil price if the trend of growing US stockpiles continues. Last week, the actual number of US stockpiles for the week was 10.3 million, massively above the 2.9 million barrels that had been expected. If we see another big upside inventory surprise, this could keep the oil price supressed in the absence of any concrete action from OPEC.
Elsewhere, US Treasury yields dipped to end last week after Fed officials made mention of slowing global economic conditions. Along with the US Dollar slipping back, this allowed the Spot Gold price to move higher although at this stage there wasn’t much conviction behind the move up to US$1220 per ounce. A more sustained run of greenback weakness may be needed for the precious metal to have a look at key resistance circa the US$1240 level.
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies