Calm before the storm in markets?

Four week winning streak coming to an end

It’s safe to say that this hasn’t been one of the more memorable weeks in the markets, with speculation and sporadic statements filling the void left by a lack of news flow.

It is encouraging then that with so much occurring in the background – Brexit planning, US government shutdown, trade talks between the US and China – markets have broadly stabilised following their recent good run, rather than reverting back to the sell-off they experienced previously.

The four week winning streak may be coming to an end but I don’t think investors will be discouraged. Of course, the one outlier in all of this is the FTSE 100 which has had a tough week, dropping more than 2% and underperforming its peers on a regular basis. But with this largely being attributed to a stronger pound on the back of the risk of no deal diminishing, I think we can give it a pass.

FTSE 100 (UK100) vs GBPUSD

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Trade talks between the US and China are being closely monitored, being a significant global risk at a time when the economy is looking shaky. There’s been a lot of speculation of the last couple of weeks and Wilbur Ross’ claim that the two sides are “miles and miles” from a deal with “lots and lots of issues” isn’t going to fill people with confidence. Still, these negotiations do typically come with posturing from both sides and investors may will willing to look through it, with previous commentary being much more positive.

It would appear that everything this week has been laying the groundwork for another potentially turbulent week to come. It may have been a little quiet on the Brexit front but all of this has been ahead of Tuesday’s vote on her plan B which includes various amendments that could have a great impact if successful. No deal appears to be diminishing and Tuesday could play a big role in that.

Pound lifted on Brexit hopes

Gold resilient in the face of a rising dollar

Gold has been consolidating throughout this week, showing great resilience around $1,280 despite the dollar making some gains in that time. Gold is typically sensitive to movements in the greenback and hasn’t even really had the benefit of risk averse markets, with them having consolidated themselves as we’ve said. This is potentially a bullish signal although I still see another drop being possible, with $1,260 then becoming an area of interest.

Oil rallies despite large inventory build

Oil has also edged lower over the course of the week, pulling back from a key resistance zone in both Brent and WTI – around $65 and $55, respectively, which looks likely to come under pressure again in the not too distant future. It’s up more than 1% today, despite a large inventory build weighing briefly on Thursday, with the gains being attributed to risks around Venezuelan exports, as the US formally recognised opposition leader Juan Guaido as President as the crisis in the country deepens.

Risk aversion sentiment grows as shutdown continues and optimism fades on trade front

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