Indices Rally on FOMC & US-Sino Trade Deal
Global equity benchmarks have commenced the week’s trading in a decisive manner with the S&P 500 breaking out to new all-time highs in response to an improved risk outlook among global investors.
On Friday, the US Treasury Secretary, alongside the US Trade Representative, met with their Chinese counterparts for a continued round of negotiations on the back of the last face-to-face meetings held earlier this month. The talks proved to be a success with officials from both countries noting that a deal is now very close to being done. Speaking with reporters on Monday, Trump said: “We are looking probably to be ahead of schedule to sign a very big portion of the China deal, we’ll call it Phase One but it’s a very big portion”. Trump and Xi had been expected to sign a deal at the November APEC meeting though investors now expect this could come sooner, fuelling the appreciation in US equities.
The Federal Reserve is expected to lower its headline interest rate by another 25 basis points when it meets on Wednesday. The move has been well price in by markets, adding to tone of demand for US equities which is likely to continue this week should the Fed meet market expectations.
Brexit negotiations have also received further clarity this week with the EU approving the UK government’s request for a Brexit extension until January 31st. Donald Tusk confirmed yesterday that the UK has been granted a “flextension” meaning that if UK parliament can agree a deal before that time, Brexit can happen earlier. UK assets prices have been muted in response given the rise in the Pound.
News of the Brexit extension has seen European equities breaking out also with the DAX pushing up to new 2019 highs. Last week the ECB kept the door to further policy easing open, saying that interest rates are expected to remain at present or lower levels for longer. The meeting was the last to be chaired by President Draghi and investors now await the first meeting with new president Lagarde next month.
Attention turns to the Bank of Japan last week. Expectations are split over whether the bank will cut rates. However, given that the BOJ recently concluded that the global slowdown was not impacting Japan to the same extent as its trading partners, and in light of US-Sino trade negotiations nearing a deal, it is possible the BOJ chooses to hold-fire at this point.
Technical & Trade Views
DAX (Bullish above 12667)
From a technical and trading perspective. DAX has broken above the monthly/yearly R1 at 12667 to trade fresh 2019 highs. With Longer-term VWAP positive, bias remains bullish in the near term. I will be watching any retest of the broken R1 for long opportunities, expecting the bullish trend to continue.
S&P500 (Bullish, above 3031)
S&P500 From a technical and trade perspective. Price reached objective of 3031 and has printed new all-time highs. Price now testing monthly R1 at 3040.25. With Longer-term VWAP remaining supportive any retest of the R1 form above should see further buying. Worth noting, bearish divergence seen on momentum studies though any pullback should find bids into monthly pivot 2965.50.
FTSE (Neutral, Bullish above 7063, bearish below)
FTSE From a technical and trading perspective. The FTSE remains supported in the middle of the recent range with longer-term VWAP having flipped positive again here. Monthly R1 at 7490 could seem some initial offers though bias remains higher here. Keen an eye on GBP movements though as any spikes higher will pull UK assets lower.
Nikkei (Bullish above 21600)
From a technical and trade perspective. Price has broken out to new 2019 highs. Currently near to testing the 23304.1. Expecting the bull trend to continue with any pullbacks to find bids into the retest of the broken trend line or slightly deeper around the monthly pivot at 21547.6.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!