European open – Trade War, Fed, Italy, Gold, Oil


Markets in wait-and-see mode

Everything is looking a little flat on Wednesday, finally a reflection of what you would typically expect in this period after a chaotic few weeks.

Source – Thomson Reuters Eikon

There’s a couple of reasons for this, one being that there’s not been a dramatic escalation in the trade war recently which is a relief. Despite his ongoing best efforts to shift responsibility for any downturn to the Fed, I wonder whether he’s now so invested in the “tariffs are good” bluff that he’s entered into territory he thought he’d avoid and at the worst possible time.

His decision to push back a significant chunk of the new tariffs to the middle of December so as to not harm American shoppers in the busy and important Christmas period was an acknowledgement that these are going to bite at home. There’s a reason they were saved until the end. He can’t do so again without looking weak and showing his hand. It’s risky territory for the US President heading into an election year.

The other reason for these calmer markets is what’s to come. The Fed minutes tonight could be interesting but they also feel outdated at this point, a lot has happened since the meeting. It’s Jackson Hole that really has everyone excited and should lay the groundwork for the final few months of the year for markets and interest rates. No pressure Jerome.

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Can Italy avoid new snap elections?

Work is underway in Italy to see if the President can avoid another snap election just ahead of the important budget season. Italy’s finances are a constant cause for concern which makes Salvini’s successful attempt to bring down the government all the more inconvenient, especially as these are never particularly straightforward as last year highlighted.

While Italian stocks and bonds have been sensitive to the all-too-familiar destabilising political landscape, the euro has been relatively unshaken. While domestically this is another negative for Italy, the risks beyond its borders are minor at this moment in time which is why the euro is taking it all in its stride.

EURUSD Daily Chart

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Gold correction hangs on Powell

Gold continues to hover around $1,500, very much in wait-and-see mode ahead of the two Fed events this week. The yellow metal has much more going for it and while more Fed easing will naturally be welcomed by gold bulls, record global negative yields and more easing on the horizon has left it in good shape.

That said, it’s looking a little overbought recently so we could be entering into correction mode. Powell may hold the key here though and any signal that a rate cut next month isn’t a foregone conclusion, or that they may hold off, could be the catalyst for a broader pullback. If $1,480 falls, then focus will shift to the $1,440-1,450 region.

Gold Daily Chart

Oil edges higher on less recession talk

Oil has continued to creep higher over the last couple of days, relieved at the current lack of recession talk after the US 10-year yield once again rose back above the 2-year. That, unfortunately, does not mean the risk of recession has passed.

All you have to do is look at interest rate expectations to see that, with markets pricing in a cut at every meeting this year, bizarre when the data continues to look good. The inventory number on Tuesday didn’t cause too much of a stir, it seems traders have bigger fish to fry and oil can add its name to the list of instruments that are hanging on the Fed this week.

Brent Daily Chart

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years’ experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.

Craig Erlam

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