A stellar start to the week as the S&P500 closed in record territory on Monday as trade negotiations have again underpinned sentiment. In the latest apparent sign that an agreement is drawing closer, China promised stronger protection for intellectual property rights. And, for the time being, fast money and volatility seekers have had their fill of chasing Bitcoin lower and booked some profits overnight.
Market demand powered US stocks to record highs at the start of a holiday-shortened week, which is a hugely bullish signal as US Thanksgiving week is typically associated with paring down of risk, not taking on more.
Investors dove headfirst into technology stocks after China said it would raise penalties on violations of intellectual property rights to address one of the major sticking points in trade talks with the US.
But the writing was on the wall last week when China's Vice Premier Liu He extended an olive branch on trade talks, despite the US Senate passing a bill on Hong Kong. Investors saw this as a bullish inference contrary to adverse media reports as US equity ETFs had their biggest buy day in two months on Friday.
So, investors are back on the equity rally wagon as they’re now faced with a potentially higher payout to Phase One than initially thought, and the probabilities of that deal coming to fruition have improved significantly in the last week.
Event risks still loom large and December tends to generate outsized returns – upside or down. So, it appears traders are nowhere near throwing in the towel and continue to go back to the well, chasing that considerable payout on the other side of the trade talk rainbow.
Not a great deal of price movement overnight, suggesting that peak Phase One optimism is getting baked into oil markets where traders appear to be hashing out a price equilibrium between the current price goal post. However, in the absence of a definite trade deal timeline or proposed tariff rollbacks, prices may remain supported but not necessarily surge higher.
WTI remains off Friday's highs but still comfortably straddling the $58.00 per barrel level, primarily on the back of trade talk optimism. Oil traders remain hopeful a trade deal will get signed. Still, the lack of clarity around the tariff rollbacks, which is the key to economic growth and bullish for oil, continues to cloud sentiment somewhat.
However, the broader macro data remains supportive for oil. Baker Hughes' data released on Friday showed the US rig count down for the fifth consecutive week and the IEA and OPEC have both cut US production forecasts, with the IEA acknowledging additional downside risk to its estimates.
Trade deal optimism continues taking its toll on gold markets, which could be prone to further declines as sureness builds up to the actual trade talk event horizon.
Gold is trading on the back foot, dropping to two week lows as surging global equities has dulled gold’s lustre with demand for the yellow metal remaining vapid. Global Times cited experts close to the talks as saying that a Phase One agreement was very close. As we suggested yesterday on the break of $1,460, the Global Times headline proved to be the primary source for much of gold's undoing overnight.
German business confidence rose for the third straight month, according to the Ifo Institute, while opinion polls in the UK show the Conservatives in the lead over Labour ahead of the general election on 12 December. Both factors have contributed to evaporating risk-off sentiment.
Gold does remain supported ahead of Jerome Powell's upcoming speech as bond yields have dipped, thinking that the Fed chair may hint at economic concerns around the fall in global trade. But with bond markets trading at half tank volume levels this week, perhaps it’ wouldn’t be wise to read too much into that activity in this holiday-shortened week.
Despite the trade talk optimism, the Ringgit continues to languish as local equity outlaws are seemingly bucking the positive moves in other regional burses.
The lack of a viable NDF market makes it challenging for foreign investors to hedge year-end currency exposure and they may feel more comfortable buying other regional assets where year-end currency risk is more accessible to manage.
But, besides the uninspiring moves on the Ringgit, it was very depressing for local investors that the KLCI was unable to regain the 1600 level as risk looked very favorable to start the week. While there’s an opportunity to position for a cyclical upswing in the global economy, the key uncertainties remain the timing of that happening and, of course, the trade deal getting inked.
But on the political front, the succession of power remains one of the most significant issues and keeps investors guarded while talking on safer bets – especially given the latest by-election result where Malaysia's Mahathir suffered the fourth election defeat for the ruling party. Political uncertainly into year-end keeps investors nervous while taking on less risky regional bets.
In a clear case of bear market fatigue, BTC may have found a temporary bottom near $6,500. The technical picture, which seems to be the primary catalyst for most coin moves, was hinting at seller exhaustion after fast money and volatility seekers ran roughshod over crypto market yesterday.
But, for the bears, $6,500 is now set up to be a middle level to toss darts at which, if broken, could open a deep dive lower.
Read more articles from Stephen Innes: https://www.axitrader.com/int/market-news-blog/stephen-innes.
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