NASDAQ is the only index which is green for the year. Theresa May is in Brussels trying to avoid the har border and hammer out a deal with the EU. Risk-off assets are in demand.
US and European futures are trading higher as investors shake off the negativity. Investors are concerned about the plummeting oil prices and the technology sector.
The WTI oil price has tumbled to sub $53 level and this is negative for the energy companies. Apple is down nearly 24% from it’s recent October peak and this has pushed the NASDAQ index lower. Both the S&P500 and Dow have are back in the negative territory in terms of their yearly gain. In other words, it was pretty much a bloodbath on Wall Street and this is denting the confidence. Investors are concerned about the global sell-off and the risk of assets are in high demand. The volatility index closed at 22.48 yesterday or up by 2.38 points. The level of 25 is of critical importance because if it moves above this point, it means more rout for the equity markets.
Similarly, the precious metal is also holding on to it’s gains and it is trading above the important critical level of 1200. The price of gold is consolidating between $1,211 and $1,230. Any spike in volatility would mean that the gold price is likely to break out of this zone to the upside. Of course, the weakness in the dollar index is also helping the yellow metal to stay in the positive zone. Remember, the dollar index itself also acts as a safe haven asset but, under those circumstances it usually has a positive correlation with the gold price.
We do not expect much action from the markets today because of the shortened trading week over in the US- Thanksgiving holiday on Thursday followed by Black Friday.
Moving back to the macro elements, the US has once again pointed finger towards China and the blame game is on. It is about intellectual property theft, as we don’t already have enough trouble. According to the new 53 pages long report, just ahead of president Trump and President Xi’s meeting, the report has a number of critical claims against China such as practices related to intellectual property, innovation and a few other things which resonate this agenda.
In the currency markets, Donald Trump has taken a step to cool down the Fed’s hawkish strategy. Although not sure how effective this could be because the Fed is independent at least for now. The Fed is on a firm path to increase the interest rate next month but the president has called for an interest rate cut. Not sure if the Fed is going to lay any attention to this but one thing is for certain; the Fed and the president aren’t on the same page.
Back in the eurozone, the Italian and German 10-year yield spread is only 1 bp away from hitting the five-year high, currently, it is trading at 326.62 bps. What this means is that the Italian are going to be in more trouble if they do not sort out their mess. The EU will imply the financial penalties on Rome for not respecting the fiscal rules. The EU is going to release their opinion about the budget plan for the euro-area nations and this particular report may push the Italian banking further out of luck.
As for the Brexit and Theresa May, she is still trying to find a solution to avoid the hard border in the Northern line and a technological solution is something which she is exploring. The prime minister is going to find a resolution for both; the UK and the EU in Brussels today so that they can work together and agree on future trade relations. The sterling is back below the 1.30 mark against the dollar and the question is if we are going to continue to move towards the 1.25 mark.