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Trader thoughts - the long and short of it

Broad-based selling across global bourses did not leave Wall Street unscathed, with the bellwether S&P 500 index shedding nearly 2 percent to mark the largest drawdown in a month.

Source: Bloomberg

Global Stocks Rout Envelops Wall Street: Technology names led the way downward, with the sector as a whole losing over 2.5 percent. A slew of negative headlines including an EU proposal for a 3 percent tax on large tech companies’ revenues and a Facebook data leak. It was revealed over the weekend that UK-based political advertising firm Cambridge Analytica harvested millions of users’ personal data without their knowledge or consent as it helped the Trump campaign in 2016.

US Dollar retreats as markets await FOMC meeting: The US Dollar was on the offensive in the final 48 hours of trade last week as markets prepared for what could be of acceleration in the Fed rate hike cycle. Hawkish rhetoric from newly minted Chair Jerome Powell, followed by similarly confident pronouncements from even established doves like Governor Lael Brainard, apparently inspired preemptive pre-positioning. The greenback erased some of those gains Monday, with traders understandably leery of overextending one way or another until the US central bank has said its piece.

British Pound gains on Brexit transition deal: The British Pound pushed higher as UK Brexit negotiator David Davis and his EU counterpart Michel Barnier announced an agreement on the terms of the post-Brexit transition after a meeting in Brussels on Monday. The accord will avoid a sudden rupture, allowing time through 2021 to phase in compliance with whatever the rules of the EU/UK relationship after Brexit are agreed to be. It is not legally binding until those rules are in place, however. “Nothing is agreed until everything is agreed,” according to Mr Barnier.

Are EU-US Working to Head Off Trade War?: The world is still moving troubling towards outright trade war, but one of the most threatening fronts of this impending global conflict may yet be averted. Late last week, reports circulated that US Commerce Secretary Ross and EU Trade Commissioner Malmstrom were in talks working towards an agreement that would prevent the world’s largest collective economy from falling under the United States’ blanket tariffs on all imported steel and aluminium. To start this new week, it was reported that there the US gave a five-point list that could earn its trade partner a critical exemption. The points – including ‘working with the US on other WTO trade abuse cases’ – are vague which may work against a resolution or for it. If the EU and US ultimately engage in conflict, it would be the fastest way to escalate to a global engagement that curbs collective GDP. Though, even if the US and EU avert a direct series of reprisals; we still won’t have turned the globe off its path towards protectionism.

Australian shares rise as energy offsets tech, financials: The benchmark ASX 200 index managed to eke out modest gains as a drop in financial and technology issues was offset by a spirited rally in energy names. Bank stocks have been under pressure for several days amid public hearings about alleged misconduct while technology shares echoed the sector’s overall weakness across global exchanges at the start of the trading week. Energy stocks were likely playing catch-up to an analogous jump on Wall Street Friday, which echoed a sudden and thus far unexplained jump in crude oil prices.

Commodities:  WTI crude oil was sent for a loop intraday Monday when a tumble through the early session was nearly completely retraced through the day’s end. At its nadir, the market was down nearly 1.4 percent on the day amid a mélange of headlines. For the bears, the ongoing tensions between Iran and Saudi Arabia kept market participants on edge; yet the move by the Saudis to form a relationship with the US produces with the prince’s visit was traction for the bulls to touch on. With global markets generally favouring range, it is no surprise to find this engine for growth to be in the same situation – still holding just below a notable technical resistance of $62.20/50

Metals were similarly mixed on the day with gold adding another bounce at $1,310 to signal a heftier support on a range that was set on the second trading day of 2018. Silver and copper are producing similar chart patterns themselves. Here, the safe haven status of the yellow gold holds more clout than speculative appetite drawn of global growth, but these are related themes.

Australian Dollar: Following the ugly end to last week, the Aussie Dollar was not Monday’s worst performing major currency. That said, it still wasn’t doing particularly well. Losses registered to the likes of the Pound are understandable given the Brexit news and its universal performance. But lost traction versus the Euro, Canadian and New Zealand Dollars suggests it is still struggling while particularly doing worse than fellow ‘commodity currency and high-yield peers.  The first round of local and meaningful event risk is due today with the release of the 4Q housing price index and the RBA’s transcript (minutes) from its last rate decision.

Market Data:

SPI futures moved 10.01 or 0.17% to 5959.43.

AUD/USD moved 0.0007 or 0.09% to 0.772.

On Wallstreet: Dow Jones -1.72%, S&P 500 -1.81%, Nasdaq -2.31%.

In New York: BHP -3.28%, Rio -2.24%.

In Europe: Stoxx 50 -1.24%, FTSE 100 -1.69%, CAC 40 -1.13%, DAX 30 -1.39%.

Spot Gold moved 0.28% to US$1317.95 an ounce.

Oil - Brent crude moved -0.14% to US$66.12 a barrel.

US Crude Oil moved -0.38% to US$62.1 a barrel.

iron ore moved -1.7% to CNY462.5 a tonne, SGX Iron Ore moved -1.82% to US$70.49 a tonne.

LME Aluminium moved 0% to US$2085 a tonne.

LME Copper moved -0.46% to US$6888 a tonne.

10-Year Bond Yield: US 2.84%, Germany 0.57%, Australia 2.7%.


Written by: John Kicklighter, Chief Strategist and Ilya Spivak, Market Strategist, DailyFX


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