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XTB TRADEBEAT

Wall Street roars back as trade war concerns recede

Summary:

  • Major US indices surged roughly 3% each during the first session this week
  • US Treasury Secretary Steven Mnuchin voices hopes that a trade war with China is avoidable
  • US dollar loses steam despite upbeat remarks related to NAFTA talks

Admittedly, the FX Asian session turned out to be quite listless to say the least, equity markets saw much more volatility following decent gains on Wall Street. Better moods were probably sparked by US Treasury Secretary Steven Mnuchin who told Fox News Sunday that he is optimistic a trade agreement will be negotiated with China and therefore a trade war ought to be avoidable. Mnuchin acknowledged that even as the US is proceeding with tariffs, and working on investment restrictions against China they are simultaneously having negotiations with the second largest economy in the world to see if they can reach an agreement. His latest remarks sounded reassuringly injecting more hopes into markets and helping them erase their last severe losses. Mnuchin said that "we’re having very productive conversations with them. I’m cautiously hopeful we’ll reach an agreement, but if not we are proceeding with these tariffs. We are not putting them on hold unless we have an acceptable agreement that the president signs off on".

It proved to be sufficient to prop up stocks all around the world though those in the US benefited the most. To be precise, the SP500 (US500 on xStation5) added 2.7%, the Dow Jones (US30) moved up 2.85% while the NASDAQ (US100) surged as much as 3.25%. Asian investors have been a touch more continent, on balance, gains seen there are notable as well. The NIKKEI (JAP225) closed up 2.35% whereas two major Chinese indices are trading 1.2% higher for a while before the close. Let us remind that the implemented tariffs on last Thursday sparked a massive sell-off on Wall Street which quickly spread over the rest of the world despite several temporary exemptions including the EU. Everybody is heavily focused on possible retaliatory steps taken by the two world’s largest economies as it would potentially dampen economic growth and stoke inflation pressures, hence in this respect the latest comments from Mnuchin do not mean the issue has been solved once and for all.

link do file download linkThe US500 bounced off its 200DMA on Monday giving bulls some hopes that the last pullback may have already come to an end. The index is running into its first obstacle in the vicinity of 2680 points which needs to be broken in order to continue marching higher. Source: xStation5

While the Asian session was remarkably calm, the Monday US one turned out to be much more interesting, and the US dollar was substantially afflicted. The greenback lost momentum despite some hopeful remarks concerning NAFTA talks. Namely according to the White House trade advisor Navarro it looks like the US will get a good deal on NAFTA. The US dollar was sold-off and as a result the EURUSD came back above a 1.24 handle reaching its local peak at around 1.2460. Technically the pair could be prone to a corrective move in the nearest term as it approached an upper bound of a descending channel. Over the Asian session there were also some remarks from Fed’s Mester who sill sees rising rates in this and the following year aimed at avoiding overheating and providing a better position for the Fed going forward. She also expects the unemployment rate to fall below 4% thought 2019 on the back of simmering slack in the labour market.

link do file download linkThe EURUSD has reached its first major obstacle after breaking out of a short-term channel. Therefore one may count on a pullback in the nearest term unless the pair moves through the mentioned upper boundary. Source: xStation5

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