Brexit, Trade Talks, Bitcoin, Oil, Gold

European equity markets are poised to open around half a percentage point higher on Wednesday, with the FTSE the notable underperformer after the pound rallied following Theresa May’s appeal to the opposition to help break the Brexit impasse.

Sterling higher as May reaches out to the opposition to break Brexit impasse

The next stage in the Brexit saga began on Tuesday evening as ay appealed to the opposition leader to engage in talks to break the impasse. It’s still not clear whether we’re seeing a genuine attempt to find a solution that can win the support of a majority of MPs or if this is more political games to alleviate the pressure on the government and make the opposition look uncooperative, or even obstructive, in their attempts to force an election. I guess we’ll see just how much both sides truly want to find a workable solution in the coming days.

Still, the move from May has resonated well in the markets, as she once again voiced her opposition to no-deal, something Parliament can actually agree with her on. A long extension now looks almost inevitable, although as ever in the Brexit process, if there’s one thing we can be confident about it’s that no one really knows what will happen next. Perhaps the fear of a soft Brexit will win over some remaining hard-liners and May will try her hand at one more vote on her deal. I wouldn’t put anything past her at this stage. We have one week to go until the emergency EU summit and a week is a very long time in Brexit.

US and China resume trade talks in Washington

Positive reports in regard to US-China trade talks, which are set to resume in Washington today, helped lift sentiment again overnight with markets building on optimism from earlier in the week that stemmed from some encouraging Chinese PMIs. The reports are not necessarily out of the blue and we’ve known this week’s talks are happening but on something so significant, investors want to be constantly reassured.

We’re being told that we’re 90% of the way there which is obviously encouraging but the final 10% - which apparently includes the enforcement mechanism and the removal of tariffs – could take some time to iron out. I think investors are happy to be patient here in the hope that the two sides get this right and put an end to a trade war that has clearly taken its toll on markets. This is a major headwind that investors will be very relieved to see resolved.

Bitcoin holding on to Tuesday’s gains

It was like the good old days in the crypto market on Tuesday, as traders in Europe and the US woke up to a more than 20% rally in bitcoin. Safe to say, it had become the forgotten instrument for a while as the very volatility it was known for slipped away and price consolidated around $4,000. In the absence of any real catalyst though, many are left to question whether there’s anything of substance behind the bounce or if it’s just a short squeeze.

Bitcoin has found some resistance around $5,100 – previous support – but the real test will come around $6,000 which was a significant support zone throughout 2018, a break of which in November sparked the move back to almost $3,000.

Oil building momentum but runs into resistance

Oil prices appear to have found a little bullish momentum again in the last few days, with the rallies we’ve seen in equity markets clearly a major factor. Another reported inventory build from API on Tuesday may have taken some of the gloss off the rally, which should make today’s EIA number all the more interesting, but momentum still looks very much with the bulls.

That said, $70 may provide significant resistance for Brent, with WTI potentially finding similar issues around $63. Falling US oil rig numbers and stabilised output at 12.1 million barrels a day may provide a boost for oil bulls, with rising production here being one of the main drags on prices.

Gold stabilises below $1,300

A softer dollar over the last 24 has given some reprieve to gold, which slipped below $1,300 last Thursday as the greenback benefited from weakness across a variety of other currencies. The key area for gold remains around $1,280, which has offered significant support since the start of the year. There have been numerous supporting factors for the yellow metal, although with risk appetite returning and the dollar remaining strong it remains challenging for bulls.