European open – Markets, Gold, Bitcoin, Oil

Markets steady after volatile week

Stock markets enjoyed a much more positive session on Thursday, bouncing back from a brutal sell-off at the start of the month as fears of further trade war escalation receded.

Source – Thomson Reuters Eikon

That’s clearly not to say that there won’t be further escalation here, that remains highly likely but it was getting quite heated earlier this week. What was meant to be a week of talks in Shanghai aimed at ultimately finding a breakthrough on those remaining disputes quickly turned into new tariffs, a reduction in agricultural imports, depreciation in the yuan and China being labelled a currency manipulator. Not bad for a few days work.

It’s therefore a relief that both sides have since taken a step back rather than rush into more retaliatory measures that harm both sides and risk further destabilizing the markets. While the dollar continues to trade above 7 yuan, after the PBOC set its mid-point at the highest in more than a decade, it has stabilized around these levels over the past couple of days which traders may be encouraged by.

While there may be a case of the Chinese firing warning shots at the White House – a reminder that there are other weapons in its artillery beyond tariffs – it’s not in its interest to allow the currency to rapidly depreciate and so both sides are playing a risky game, determined to emerge from this victorious. This makes a near-term resolution unlikely which could in turn weigh on risk appetite for some time yet.

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Could gold’s momentum start to fade?

Gold is continuing to thrive in this environment, topping $1,500 over the last couple of days to extend its incredible run. Since the end of May, the yellow metal has risen almost 20% on the back of central banks around the world cutting interest rates and increasing risks to the outlook.

It seems to be hard to find anyone that’s bearish gold at the moment, which is hardly surprising given the environment but may be a sign that the market is a little overextended. That said, the charts don’t yet agree although the last time we traded around these levels, $1,520-$1,560 was a very significant area of support and resistance so perhaps momentum will start to fade soon.

Gold Daily Chart

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Bitcoin holds onto gains

It’s sometimes easy to under-appreciate the moves we see in various markets since bitcoin tore up the rule-book on what’s normal and what isn’t. What looks an extraordinary gain in gold is barely more than an ordinary week in the crypto sphere. Bitcoin has risen around 30% in less than two weeks, rebounding off the psychologically significant $9,000 levels back to a more comfortable area in the process. While there will always be those that want to attribute these kinds of moves to safe haven moves, I still feel this is more a case of want rather than there being any actual evidence of such action.

Oil still looking vulnerable despite holding to key support

Oil prices are taking a breather over the last 24 hours or so, having been pummeled by the trade war escalation and threat it poses to the global economic outlook. We’ve seen a little bit of a bounce over the last day or so but prices have still dropped around 10% this month already and continue to look vulnerable. WTI is holding on around $50-51 support area but momentum is very much against it and the charts aren’t looking too favourable right now.

Brent Daily Chart

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