Monday, 3 December 2018

GLOBAL MARKETS SURGE ON TRADE TRUCE HOPES; QATAR LEAVING OPEC NOT PARTICULARLY IMPACTING OIL PRICE

Optimism over the temporary trade truce announced between the United States and China after the G-20 summit in Argentina last weekend has played a massive role in lifting global investor risk appetite at the beginning of the new trading week.

Improved risk appetite is seen throughout a variety of different asset classes across the globe, including a stronger mood for stock markets and a number of emerging market currencies benefiting from added investor appetite towards taking on further exposure towards risk in their portfolios.

Away from improved risk appetite, one of the key takeaways from the market fluctuations on Monday is that there is a resumption of Dollar softness in the market. It has long been documented that alleviated trade tensions would reduce buying demand for the Greenback; further progress towards the easing of trade tensions, coupled with a more downbeat tone from the Federal Reserve regarding interest rate expectations is presenting an interesting opportunity for traders to take-profit from USD buying positions.

EM currencies jump against USD
All of the currencies in the APAC region are trending higher against the Dollar, with the exception of the Indian Rupee that has declined 0.85% at time of writing as a result of local data missing expectations. A similar trend has been noted across the EMEA and it will be monitored whether this rally could extend into Latin America later this afternoon.
The South Korean won, which is often measured as the Asian currency proxy for investor appetite towards risk is higher by more than 0.9% while the Chinese Yuan has advanced by 1%. Both the South African Rand and Mexican Peso are each over 1.7% higher on trade truce optimism.

Rally shows how sensitive global markets are to trade tensions
The rally that we are experiencing across different asset classes goes to show that in spite of the trade tensions between the United States and China being seen as bilateral issues between themselves, being two major global economic powers means this does have huge ramifications for global market optimism.

The downturn in global economic data throughout the second half of the year has pointed out to many that the prolonged trade tensions are having a disruptive influence on the global economy. It would be of benefit to all for these tensions to go away completely.

WTI Oil joins the risk-on trade
WTI Oil jumped as much as 5% in the early hours of Monday trading, which goes a long way towards explaining how global market optimism and previous concerns around the impact of trade tensions can have on demand for commodity markets. In recent weeks Oil has suffered severely from global economic health concerns stemming from trade tensions leading to lower demand for Oil, and if there is further progression with this issue it would be seen as a potential “buy” for the Oil markets.

The news of Qatar pulling out of OPEC in January 2019 will be seen as a negative headline for the cartel, but I am not heavily convinced this will have high impact on the Oil market. Qatar has already stated that this decision is not linked to the political conflict that led to Qatar being blocked by many of its regional peers in June 2017, but because they prefer to focus on the Gas industry.

It is important to remember that OPEC has gradually lost an increasing amount of its influence on the Oil industry over the past couple of years and is instead trying to co-operate more with outside producers, therefore I wouldn’t expect the news that Qatar is going to leave the cartel to be a big blow for the group as long as relations with Qatar can be maintained. 

Will the market rally have the legs to extend into Christmas?
If there is further progression over trade tensions between the United States and China then this has the potential to create a heavy market rally before trading wraps up for 2018. The main question that investors now need answers for is how long can this trade truce rally really last, and is it also possible for further progress in trade talks between the United States and China from this trade truce?

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