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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