USD – Risk rally caps on as hopes improve on trade and shutdown fronts
Stocks – Still unable to take out last week’s high
Oil – Saudi Arabia to overdeliver on pledge cuts
Shutdown- Will Trump squash this deal?
Gold – Refuses to break despite surging markets
The market reaction was very clear on optimism from both the trade front and an apparent deal among American lawmakers to avoid a second government shutdown, stocks rose sharply and safe-haven currencies declined sharply. The dollar is down for the first time in nine days and we could finally see a sustained pullback here if progress does not digress on the trade front.
What is somewhat concerning for stock bulls is that today’s rally has struggled to break above last week’s high. The Trump factor could see one or both positive developments fall apart and markets will remain cautious until something concrete is outlined. Going into the week, expectations were fairly positive we would not see a second government shutdown and that the trade talks would be the key catalyst for the next major move.
Oil prices received a double dose of positive news, Saudi Arabia said they would over deliver on their crude production cuts by more than half a million barrels and risk appetite improved, sinking the dollar on positive developments on the political and trade fronts. Oil may see further gains if the dollar sees a significant pullback here, but not necessarily on continued compliance from the OPEC led production cuts as US production continues to thrive.
The proposed deal to avoid a second government shutdown saw both sides of the aisle take concessions. The Republicans will accept $1.375 billion for 55 miles of physical barriers, much less than President Trump’s initial demand of $5.7 billion and 220 miles. While the Democrats removed their demand to cut beds for detention within the US. If the President signs off on the agreement, it would fund the government through September 19th. The market’s reaction to the tentative deal to avoid a second shutdown is risk positive as it could remove a big political headache and opens the door for the US Congressional leaders to focus on the debt ceiling and possibly an infrastructure deal. The President did squash an earlier deal reached by Congress last time and we will not for sure if he will do it this time. The political damage from a Trump refusal however would be much worse this go around as it would complicate debt ceiling talks.
Gold is flat in early trade and the price movement in the precious metal signals that despite all the optimism on today’s developments on trade talks and government funding, growth risks remain. Gold could remain bid as financial markets appear not to be completely sold we will see a substantial trade deal finalized next month and that global growth may remain sluggish.
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With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya
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