European open – trade deal, gold, oil

New year off to a flyer

The year is off to a good start, with European stock markets pushing out decent gains early in the session.

Source – Thomson Reuters Eikon

It’s easy to forget that we spent most of the last year talking about huge risk events and recession red flags while quietly making impressive gains. Of course, it’s important to measure this against a horrible end to 2018 which puts the gains into some context.

Still, that’s some bounce and begs the question, just what can we expect this year? Will Trump be as aggressive on trade in an election year or is his eye on the prize? With Brexit finally moving forward, will the cloud of uncertainty that’s hung over the UK for years start to lift to the benefit of the economy?

There’s plenty of reason to be more optimistic heading into 2020 but then, there’s also plenty of reason for caution too. Everything is not suddenly okay because the US and China are about to sign a phase one trade deal, or because the UK and EU are preparing to discuss the future relationship rather than the divorce. It could be another turbulent year with many surprises along the way.

Gold temporarily stumbles around $1,520

A soft end to the year for the dollar has propelled gold to a three month high, with the phase one trade agreement between the US and China further aiding the move. It had previously been suggested that the conflict was supporting the greenback due to a combination of the US having less to lose and the flock to the safety of high yielding Treasuries.

Gold finally broke through $1,480 just as the holiday period was getting underway and was propelled above $1,500 shortly after. It has once again run into resistance around $1,520 which may slow it down a little although it’s hardly running short of momentum so that may only offer short-term relief.

Gold Daily Chart

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Oil rally running out of steam

The rally in oil seems to finally be running on fumes. The most recent peak came just before the end of the year and while there could still be a little further to run – Brent looks keen on $70 – progress may be slower and more prone to corrective moves.

Naturally, the trade deal has been supportive of the rally we’ve seen over the last month or so but with that almost fully priced in by this point, the bullish case for crude may be waning. We may need to see that economic optimism turn into better data before we see more substantial gains.

Brent Daily Chart

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