US Open – Risk Appetite Returns on China Reforms and Hopes of German Stimulus

The week is off to a pleasant start, with traders seemingly buoyed by Chinese lending rate reforms and the prospect of German fiscal stimulus, but will it last?

Markets actually ended last week on a relatively good note so what we may actually be witnessing right now is traders relishing in the blissful trade war silence rather than anything more optimistic.

Of course, the reforms to Chinese lending rates are a positive and may provide a cushion for the economy but it’s still too early to tell how padded that will be and how much pain it will alleviate.

Then there’s fiscally conservative Germany, who’s finance minister, Olaf Scholz, dangled the prospect of stimulus in front of everyone, a full force response of around €50 billion. The biggest problem I have with this is that they’ve always been hesitant in the past and this slowdown is hardly new, they’ve contracted on two occasions in the past year alone, where’s the response been so far? Will it arrive on time if it is signed off? I’m skeptical.

Gold looking “toppy”

Gold is fascinating at the moment. It’s been unshakable for months. Risk-off, fantastic. Risk-on, no problem, central banks are cutting rates anyway. It was a bit of a slow burn in July but June and August have been knockout months. The last week though has seen it lose a little momentum, surprising considering on Wednesday everyone became convinced we Bare heading for a recession, which only lifted gold a little.

At these extended levels and in an area of historical significance – around $1,520-1,560 – perhaps it’s not surprising that we’re seeing some profit taking. It had rallied around 20% since late May, that’s some rise. If it is heading for correction – and that’s obviously not a given – then it’s a question of how much. I’m not convinced it will be too great in this environment, but $1,500 looks to be crumbling a little this morning, which makes $1,480 key. A move below here draws attention to the $1,440-1,450 area we peaked around in July.

Oil holding its own after recession warnings

Oil is enjoying the risk-on start to trading, giving it some reprieve from last week’s sudden and sharp declines as everyone (quickly) came to terms with the apparently inevitable recession that we’re facing. It goes without saying that recessions are not good news for oil prices, but WTI is still right in the middle of the $50-60 range it’s traded in since mid-May, so perhaps no one is panicking too much just yet. The trend is still not oil’s friend but it’s continuing to hold its own for now, although the headwinds are arguably growing.

Bitcoin holding firm but trend against it

Bitcoin is quietly on the rise again on Monday, gaining around 3% – pathetic by its own standards really – in early trade. Once again this month we’ve seen bitcoin pushed around by the naysayers but it’s continuing to hold its ground and refuses to fall below $9,000-9,500 support zone. Unfortunately, the trend is still against it though and unless it can end this trend of lower highs and break through the August peak, I fear more assaults on that support region could follow.

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