LCG Research: Fixed Income moves rattle equity markets

 

Asian markets followed the US lower overnight as recent exchanges between bot China and the US indicate that this trade war will continue for a prolonged period of time. With the US claiming its not ready for a trade deal and China toying with the idea of banning rare earth exports the climate is a long way from where it needs to be for a trade agreement.

Concerns over the impact of a prolonged, messy trade war on the global and US economy sent investors scrambling for safe havens in the previous session. So much so that the 10-year US treasury yield inverted with the 3-month yield in a recession warning from the fixed income market. Yields on the 10 year have edged higher overnight to 2.26, up from 2.21 in the previous session. This is offering some respite. European futures and US futures are pointing to a firmer start on the open whilst safe havens such as gold and the yen are giving back gains from the previous session.

EUR/USD to $1.11 post US GDP data?

The dollar is trading close to a 5 month high as attention turns towards the US GDP Q1 revision later today. The dollar could extend gains in the case of a better than expected first quarter GDP. In this case the EUR/USD could provide a good trading opportunity, given the unexpected rise in German unemployment reported in the previous session. Following the fist increase in German unemployment in two years and the biggest rise in 10 years, the EUR/USD dropped to $1.1124. A stronger reading from the US GDP could send the euro sub $1.11 for the first time this year.

Oil pares losses

Oil is recovering from a three-month low hit on Wednesday, following a deeper than expected decline in US inventories. Fears over a prolonged trade war and global downturn hitting future demand sent oil tumbling to a low of $56.88 in the previous session. In early trade on Thursday oil is back above $59 as it looks to target $60 owing to a report showing crude inventors fell by 5.3 million barrels last week, significantly more than the 900,000-barrel decline forecast.

Following the decent inventory report oil should stabilize back around $60. Granted the US – Sino trade dispute is a concern. However, support from the ongoing OPEC output cuts and tensions in the middle east, in addition to falling inventories should keep oil stable.

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Jasper delivers regular commentary, seminars and webinars on market news, trading analysis, strategy and psychology. He is regularly interviewed by BBC News, Bloomberg, CNBC and Sky News, and has featured in The Times, Guardian and Daily Telegraph. Jasper hosts a weekly charting analysis webinar. He is qualified as a Chartered Market Technician (CMT) with the Market Technician Association, and has a degree in Finance and Economics.