Waning risk appetite on postponed US-China talks. Euro breaks key support. Pound still ahead of BoE decision – By Ipek Ozkardeskaya, Senior Market Analyst.

 
0600am GMT | November 7th 2019

News that a potential trade deal between the US-China may be postponed to December weigh on the market sentiment. Investors were hoping to get an interim deal out of their way in November, but it is likely not happening. If stock traders are moody, it is because a lot could go wrong during that additional month.  

American brands lose popularity in China

According to a latest survey in China, more than 75% of the surveyed expressed their discontent regarding the endless trade war with the US and they said they would boycott American products. Hence, the US has an accrued interest in cooling off the tensions before further damaging its country’s image in the world’s largest consumer market.

The Single’s Day shopping festival due November 11 will give an insight on how serious the situation has become from the perspective of an average Chinese consumer.  It is said that the American brands could be left behind at next week’s shopping euphoria. The Chinese reluctance to buy American products could also have an undesired impact on massive purchases of farm products that have been promised to the US.

Henceforth, it is in America’s best interest to get a deal done. And fast.  

US’ loss, Australia’s gain?

One’s loss is another’s gain. Australia saw its trade surplus boosted to A$ 7.2 billion in September versus A$5 billion expected by analysts. Last month’s A$5.9 billion read has been revised up to A$6.6 billion.

The US-China trade war is certainly a leading booster for Australian exports. Australian exports surged by more than 35% since last year, although the latest figure showed a slight 2.7% decline in September.

Still, the Aussie remained offered against the US dollar in Sydney, on fears that the extended uncertainty on the US-China trade front could weigh on key commodity prices in the coming weeks.

Iron ore slid 0.40% in Dalian exchange, as LME copper fell 0.56%.  

Asia mixed

Australian equities gained 1%, but energy stocks (-0.79%) underperformed as oil softened on mounting uncertainties regarding a trade agreement between the US and China.

Hang Seng (-0.42%) and Shanghai’s Composite (-0.27%) fell. Chinese yuan weakened past the 7 mark against the US dollar.

Japanese equities treaded water, as yen strengthened on increased safe-haven demand. The latest Japanese 10-year bond auction, on the other hand, saw limited demand sending the 10-year JGB yield to a five-month high.

Gold returned to $1490 an ounce. Resistance is seen near the $1500 level due to rising sovereign yields across G10.

The US 10-year yield stabilized above the 1.80% mark, as the US dollar consolidated a touch below 98, the monthly resistance.  

Euro breaks key support

The EURUSD stepped into the bearish consolidation zone after breaking the 1.1060 Fibonacci support in Asia. Stronger trend and momentum indicators could encourage a deeper sell-off targeting 1.1030 (50% retrace on October rebound) and 1.0992 (major 61.8% retrace).  

BoE to keep a low profile

The pound sees limited price action. Cable drifts lower following a lower-highs-lower-lows pattern on election uncertainties and a stronger US dollar.

The Bank of England (BoE) is expected to stay quiet at this week’s monetary policy meeting.

Inflation in the UK has been cooling down with the recent pound appreciation and the BoE needs that margin to be able to intervene effectively if needed after the Brexit happens.

The stronger the pound, the lower the inflation. The lower the inflation, the higher the BoE’s action scope. Hence, British policymakers have no interest in sending dovish messages out to the market and spoiling the pound’s strength.
The actual wind down in sterling, on the other hand, should remain limited by the low probability of a no-deal Brexit.

The FTSE 100 tested the 7400p offers on softer sterling on Wednesday. Today, energy and mining stocks could diverge negatively on postponed US-China trade talks and the resulting decline in risk appetite. As such, the British blue-chip index could feel the pinch of lower oil and mining stock prices.  


FTSE is expected to open 4 points softer at 7392p.  

Sainsbury’s Q3 EPS seen below 0.10p

Sainsbury will reveal its third-quarter earnings today. The earnings per share is seen as low as 0.081p versus 0.106p printed a quarter earlier. Increasing profits in a long-matured retailer market is a hard task but doing it amid Brexit shenanigans is a whole different story.

Still, there is sizeable opportunity in boosting sales via convenience stores and the digital platform. Also, Sainsbury’s refurbishment efforts seem to pay in early results. But is that enough for investors?

Sainsbury’s share price is testing the 200p support. Given the low expectations, a positive surprise could give a boost to the stock price and encourage a move toward the 218p, the 200-day moving average.  While a disappointment could send the stock price toward the 180p, August dip.  

Opening calls
FTSE to open 4 points lower at 7392                       
DAX to open 10 points lower at 13170            
Contact: Ipek Ozkardeskaya, Senior Market Analyst
Twitter: @IpekOzkardeskay
Email: ipek.ozkardeskaya@lcg.com
Skype: Ipek.ozkardeskaya
Financial Markets and Political Commentary
 

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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.