Risk Appetite Favored as Trade War Fears Ease

Risk Appetite Favored as Trade War Fears Ease

US Equities

The US Indices traded at the highest in two weeks. US equities felt optimism as trade war concerns calmed to some extent after President Donald Trump’s economic adviser said that the administration is in negotiation with China. Markets started trading yesterday with an initial drop of 3% after China announced that they will impose 25% tariffs on 106 US products as a response to the 25% tariffs on 1300 Chinese products. Dow Jones traded around 23400, but the leakage of the positive news, changed the market sentiment and encouraged buyers to jump in. Major indices were able to erase all the losses by US open and continued higher through the Asian session.


The dollar index, DXY, is still trading in a narrow range between 89.80 and 90.30 as market is shifting between risk-on and risk-off trades. The Dollar gained yesterday against the safe heaven currencies such as JPY and CHF as markets inched higher on the optimism of negotiation to avert trade war. Yesterday, we had several economic releases from the United States, which started by the ADP Nonfarm Employment change. The numbers came out better than expected showing a change of positive 241 thousand jobs versus an expectation of 208 thousand jobs. Durable goods orders dropped slightly, whereas factory orders showed a huge progress in February after a dip in January. ISM non-manufacturing PMI, even though March numbers came in a little lower but they still show momentum in the non-manufacturing sectors.


EUR/USD was supported yesterday, by the progress of the Eurozone economy, showed by the indicators that were released. The unemployment rate is still dropping proving that the job market is becoming stronger, a reading of 8.5% is the lowest since April 2009. On the other hand, the Preliminary CPI numbers of March, showed a pick-up in inflation which will help the European Central bank to stay on track with the tapering preparations.


The British pound dropped in early trading yesterday, after a weak construction industry data, but the pound erased these losses as traders shifted to risky trading. The shift to risk-off was shown in the strength of the GBPJPY that was able to trade at the highest since February 21st.Traders change in money allocation from Yen which is considered a safe heaven, to other risky currencies such as pound, boosted the currency. In terms of data, pound traders will be waiting for the services PMI which is a very important economic indicator, since services sector is a key pillar of the British economy.


Gold prices slips as the trade war fears between China and United States eased yesterday. Trades dumped the safe heaven, running after risky trades and investing in the stock market. Gold Prices hit a week high in early trading on Wednesday, but couldn’t hold the gains after the optimism that was felt in the market. Gold is now trading around the lows of the week.


Oil prices appreciated yesterday to trade a high of $63.70 as the U.S oil inventories data showed a surprise drawdown in the supply. U.S West Texas Intermediate Crude hit a low of $62 before the release of the Energy Information Administration inventory data. US. Crude inventories fell by 4.6million barrels last week, compared with analysts’ expectations for an increase of 246,000 barrels. Moreover, oil gained support as a report showed that the OPEC output in March was the lowest in 11 months due to Libyan outages and drop in Venezuelan supply.

The most important economic events:

GMT Country Event Expectation Previous
8:00 EU Markit Composite PMI (Mar) 55.3 55.3
8:00 EU Services PMI (Mar) 55.0 55.0
8:30 UK Services PMI (Mar) 53.9 54.5
9:00 EU Retail Sales (MOM) (Feb) 0.6% -0.1%
12:30 US Initial Jobless Claims 225 215
12:30 US Trade Balance (Feb) -56.9 -56.6


The prices and news mentioned in this outlook are absolutely no guarantee of future market performance and do not represent the view of ICM Capital Limited. Financial markets can move in either direction causing profits to be made or complete losses to be incurred by the trader. Each trader must decide for themselves what their risk appetite is and ensure that correct risk management procedures are in place before placing any trades.

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