Weekly Market Overview: market pessimism about a US-China trade deal

Weekly Market Overview

Alongside the Reserve Bank of Australia and the Bank of Canada’s rate meeting this week we saw changing risk sentiment on the latest US-China trade negotiations. Risk was off on Tuesday, but back on for Wednesday. Staying abreast of the latest US-China trade deal progress is vital for understanding the short-term risk moves in the market. When risk is on, and the market is optimistic about a US-China trade deal, expect AUD, NZD, CAD and oil strength. When risk is off, and the market is pessimistic about a US-China trade deal, expect JPY, CHF, gold/silver strength and weakness in AUD, NZD and CAD.

Key events from the past week

AUD: RBA rate statement, Tuesday Dec 3 Governor Lowe indicated that the RBA are at a pause in their rate cuts. They hinted that they were perhaps happier on the sidelines than the market was expecting. This initially resulted in AUD strength, but remember that the AUD is also sold off with risk off moves.

CAD: BoC rate statement, Wednesday Dec 4 The rate statement referred to the Q3 investment spending being strong and ‘nascent evidence that the global economy is stabilising. The last meeting was a little more hawkish than the market was expecting supporting CAD this week.

OPEC: Meeting in Vienna, Thursday, Dec 5-6 In an attempt to get a boost for the IPO of Aramco, Saudi Arabia are reported to want OPEC+ members to extend or even add additional production cuts. The result of the meeting is unknown at the time of writing. Expectations are for cuts to be extended to March 2020.

Key events for the coming week

USD: Federal Reserve rate meeting, Wednesday, December 11 Expected to keep rates on hold at 1.75% focus will shift to the FOMC statement. Current expectations are 62.6% for one rate cut in 2020.

EUR: ECB rate meeting, Thursday,  December 12 Again expectations are that the ECB will stay on hold and keep rates unchanged. However, this is the first ECB rate meeting where we hear from ECB’s new President, Christine Lagarde, so watch out for potential volatility in the press conference at 13:30GMT.

Risk sentiment: US-China trade tensions, ongoing  Expect the unexpected when it comes to the US-China trade deal. US President Trump and China’s President Xi have still delayed signing the Phase one deal. Any definitive breakdown in this deal and we can expect risk off moves in typical risk assets: JPY, CHF, & Gold strength; AUD, NZD and oil weakness.

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