Markets remain under pressure of trade wars US-China
The markets last week was ruled by two news. First – the decision OPEC+. The parties to the agreement contrary to expectations of pessimists failed to agree on significant production cuts. It stopped the fall in oil prices, and supported commodities in General. But at the same time markets remain under pressure from a trade war between China and the US.
A truce for 90 days at the G20 summit, looks fragile, and the fragility indicates that the market reaction to the second mentioned important news: in Canada on charges of violations of sanctions against Iran arrested the financial Director of a Chinese producer of it equipment Huawei, the daughter of the founder of the Corporation, Meng Wanzhou. The top Manager is accused of providing false information to banks in order to hide transactions with Iran, which may be qualified by the American court as a major fraud.
The Huawei, if to judge by the headlines in the media, one of the largest successful counter-intelligence operations of the U.S. recently: “the US Government is forbidden to use the technologies and devices of Huawei and ZTE”; “Australia has banned the supply of equipment Huawei and ZTE for its network 5G”; “Huawei and ZTE are not allowed to test 5G in India”; “British BT has removed Huawei from the list admitted to 5G, the company’s products are constantly tested by the intelligence Agency GCHQ”; “Canada performs analysis on Huawei”; “Japan will prohibit procurement of equipment Huawei and ZTE,” etc.
China has expressed vociferous protest against the actions of Canada, the canadian dollar came under pressure at the end of last week, at the beginning of this, in Asian trading on Monday failed Aussie sensitive to Chinese risks. Both drawdowns were purchased, but futures on the S&P-500 in the Asian session on Monday, touching the bottom.
At the same time the dollar index will not respond to weakness in risky assets, and Monday continues the rebound that began last week after he failed to overcome 97. This behavior indicates that dollar bulls can not encourage flight from the risks, or the fact that after the recent passages of Powell and the return of the ten-year UST yield is again below 3%, the dollar is the preferred currency protective.
Anyway, so far justified our two main ideas of the last two weeks: selling USD/JPY from 114, that 1.13 EUR/USD will hold. A week ago the EUR/USD was still in the medium-term descending channel, on Monday she confidently came out of it. We recommend to buy it, and build purchase after the break up 1.146 and then 1.15.
The ultimate objective of the correction, in our view, lie in the area of 1.185 or higher. We recommend you to keep the shorts in USD/JPY is the best position that reflects the corrective mood in risky assets and China risks. As before, we do not suggest to sell sterling ahead of a final decision of the British Parliament for Brexit.
That to commodity currencies – look at the oil. Until it develops only lateral correction, do not expect a rebound in commodity currencies. If oil prices do not show positive momentum after a fairly short time downtrend will resume. Any attempts to recover can only speak when you pin Brent back above 63.5, and the ascending correction – in the breaking up 64.6 (23.6% of the drop from highs to recent lows).
As we predicted in the beginning of last week, the ruble has tried to develop strengthening within a couple of percent on OPEC’s decision, but without much success. At the end of the week the exchange rate even slightly increased from the level of the market open last Monday, although the opening had been significantly below the close of last week – so the course played the outcome of the OPEC+.
On the one hand, the termination of lower oil is positive for the ruble, on the other hand the oil for the ruble has become a secondary factor influencing the course, and the paramount was the interest rate differential and global risk appetite, which now decreases again. Political factors are not in favor of the ruble – the scandal with the detention of Ukrainian ships and sailors in the Kerch Strait may still obtain development. On the other hand, this is clearly not the mainstream on the background of the scandal with the Chinese top Manager.
Overall, the backdrop for the ruble is now no better and no worse than any other commodities, and we expect unprincipled weeks. The ruble will wait, when is S&P-500 the bottom the beginning of the month, and whether oil back above 63.5. If a positive scenario there is a chance for a good new year rally with targets below 65. In a negative scenario, the decline may go to the August lows, especially as the seasonal factor is not in favor of the strengthening of the ruble at the end of the year in Russia intensively devivals the state budget, part of which leaked on the currency market.
The stock market
The medium-term picture in the index S&P-500 at the end of last week drew a grim. Hopes for recovery were not met, and formed “dead cross”: the 200-day moving average crossed down 50 day, the index sharply bounced back from the intersection. Yield curve of us government debt began to inverserotate, indicating the approach of a recession. On such a technical background, we do not recommend buying neither American nor any other stock.