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European update – Trade war, China, Gold, Oil

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Silence is bliss as markets pare losses

It’s been a wild ride in the markets so far this week and there’s little reason to expect anything different today, with Europe currently higher and US futures in the green.

Source – Thomson Reuters Eikon

It’s safe to say investors are struggling to make up their mind at the moment. On the one hand, the trade war is a significant downside risk to the global outlook but on the other, central banks are cutting rates around the world in a bid to halt the slowdown before it takes hold.

I guess the fact that we haven’t had an escalation in the last couple of days is also helping, given how quickly everything escalated in the immediate aftermath of the talks in Shanghai. Markets clearly aren’t stabilizing but the sell-off has stalled, for now, which will come as a relief.

Chinese trade data released overnight further highlighted the impact that the tariffs are having on trade, although exports did surprisingly rise in July while the import numbers weren’t as bad as feared, resulting in a still high surplus. August data may also show a pop in export activity ahead of the new tariffs which take effect on 1 September.

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Gold approaching major historical support/resistance area

Gold broke through $1,500 for the first time since April 2013 on Wednesday but profit taking has once again kicked in as the rebound on Wall Street turned traders away from the safe haven. I don’t think people are going to suddenly turn bearish on gold though, with the uncertain environment and easing central banks two notable bullish factors. The last time we traded around these levels, the $1,520-1,560 area was a very strong area of support and resistance over a couple of years from 2011-2013.

Brent Daily Chart

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Oil traders fretting as global outlook darkens

It’s interesting to see how the different asset classes are reacting right now and oil charts suggest there is plenty to fear in the current environment. As the trade war has deteriorated further, oil prices have plunged, dropping almost 15% in a week before paring some of those losses over the last 24 hours or so. Oil prices are back around the 2019 lows and for all the wrong reasons and it seems no amount of central bank easing is making traders feel any better about what lies ahead.

Brent Daily Chart

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