European update – Trade war, ECB, gold

Cautious optimism ahead of ECB

There’s caution optimism across European markets on Thursday as China and the US offer gestures of goodwill and investors get excited about a massive ECB stimulus package.

Source – Thomson Reuters Eikon

The trade war has seriously tested investors’ eternal optimism over the past year and while there has been scares and investors faith has at times wavered, we’re now back at near record highs again and all is hunky dory. I mean, we’re also apparently headed for recession so perhaps that’s not entirely true.

But we have apparently seen a thawing in relations between the US and China, following token gestures of goodwill between the two, so perhaps we’re at least on the right track. Unfortunately, I’m not really convinced and don’t think they represent a thawing of anything. We’re no closer to a deal despite the niceties and more tariffs are coming. Investors don’t really want to believe that though.

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Draghi to go out with a bang or a whimper?

The big event today is undoubtedly the ECB and whether Draghi is going to go out with a bang or a whimper. Everyone is convinced Draghi means business today and is packing the bazooka for one last showdown. Investors have high expectations with a rate cut, QE and tiered deposit rates expected, combined with all the technical adjustments that makes it all possible.

I can’t help but fear that investors have got a little ahead of themselves here. There are hawks on the board that have repeatedly questioned the need for stimulus and I question whether Draghi’s penultimate meeting as President is appropriate for such a huge package. Draghi isn’t shy of bold policy decisions though, as we’ve seen over the last eight years so who knows.

Gold looking a little soft despite rebound

Gold is back above $1,500 in early trade and enjoying a second day in the green after having tumbled from its peak earlier in the month. It does feel like the mood has shifted towards gold in the near-term, following such a strong rally. The key level above remains around $1,530, while below a break of $1,480 would be very interesting.

Gold Daily Chart

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