Markets experienced a whippy day as a combination of the current Geo-Political influences and market moves pushed investor sentiment first one way and then the other. News out initially in the Asian session and then confirmed in the New York day that the US and China are starting to speak again on the trade front helped lift investor sentiment and led to a rally in risk assets. However, US indices finished the day slightly in the negative as another big drop in the Oil price dragged down the energy sector, WTI now trading just above $55/b. The dollar dropped against most of the majors and EM’s with the dollar index trading down to 97.20 and sterling got a boost as positive Brexit news hit the market that a draft agreement had been reached with the EU. The situation was not looking as positive between the EU and Italy as reports hit the market that the Italian government will stick to it’s budget deficit and growth targets despite EU concerns.
The fact that the US and China are once again in discussions on the trade front is good news for markets, but many participants will have noted that the reaction has been relatively muted across most asset classes. The market has been lulled into positive moves before on this subject which has dominated sentiment for the last 9-12 months and will now be looking for some concrete evidence of progress before we see stronger rallies in risk appetite and assets. Expect the market and in particular the most vulnerable risk currencies to experience more volatility as more comments come over the next couple of weeks from both sides leading up to the G20 meeting when the two leaders are due to meet.
Looking ahead to today’s trading sessions and it looks to be a very interesting day ahead, not only are we kicking off on the back of more positive sentiment towards global growth but we have some crucial fundamental data due out today. First up in the Asian session is the Wage Price Index data in Australia, but this will probably be superseded in level of importance in the current environment by the Chinese Investment and Industrial Production data later in the day. We’ve got crucial CPI data due out in both the UK and the US today and then we hear from Fed Chair Jerome Powell early in the Asian session tomorrow. Expect sentiment to continue to dominate market moves in the short term as headlines maintain their influence on direction, but don’t discount the underlying fundamentals as we move forward towards the new year.