Trade Optimism Trumps Weak European Economic Sentiment

Global markets bounced higher on Tuesday as optimism grows over a US – Sino trade deal. A strong Asian session spilled into Europe, although markets pared gains as Wall Street opened owing to increasing tech concerns.

US and China extending trade talks for another day has been interpreted as a positive sign by the markets. Whilst no reason was given for the extension, Trump’s tweet that the talks “were going very well” was sufficient to lift sentiment boosting appetite for riskier assets such as stocks, whilst safe haven gold declined.

With US and China working to resolve their issues, the Fed promising to remain flexible and the US economy firing on all cylinders it is easy to see why sentiment is on the up. Obviously, this is not the end of US – China trade tensions by a long shot, ad there will almost certainly be further bumps and twists along the way but for now the markets are happy with the slow steady progress which it perceives has been achieved.

Dax Higher Despite Dismal German Data
The Dax joined its European peers surging higher, despite some dismal data from Germany. German industrial production declined -4.7% month on month in November, significantly lower than the -0.8% decline forecast. This comes hot on heels of downbeat German factory orders, which dropped by -4.3% in November, the latest signs that the eurozone economy is slowing as trade tensions sap momentum for the powerhouse of Europe.

Euro Drops As Economic Confidence Hits 2 Year Low
Whilst the Dax escaped relatively unscathed from the dismal German number, the euro wasn’t so fortunate. The euro was trading on the backfoot as more disappointing eurozone numbers came in. Eurozone economic sentiment index fell to the lowest level since early 2017. The December index printed at 107.3 as the eurozone economy ends 2018 on a very weak note, just as the ECB are withdrew policy support.

The weakness was widespread across sectors and is signalling a soft fourth quarter for the eurozone economy. GDP growth forecast of 1.7% for the 2019 is suddenly looking rather optimistic which raise doubts over whether the ECB will be able to hike interest rates as planned later this year.
The euro was down 0.3% versus the dollar, however it has rebounded off 1.1425 and is moving cautiously higher. With key US data not being released owing to the US government shutdown, FOMC minutes released tomorrow could be the next focus. However, it is worth keeping in mind that the minutes could well now be out of date following Fed Powell’s more dovish comments on Friday.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.