On Monday, The US Department of Justice filed criminal charge against the chief financial officer of China tech giant Huawei, which made investors worry that the long-awaited US-China trade talks won’t bring enough progress to pave the way for striking a deal at some point this year. Despite the nervous environment, after a negative start, European markets managed to shrug-off the concerns and turned green on the day. But as investors continue to closely watch trade developments and start to shift their focus to the Fed’s policy meeting that concludes on Wednesday, the risk sentiment could turn sour at any point now. So far, Britain’s FTSE 100 adds 1.23 per cent to 6,830, France’s CAC 40 rises by 0.87 per cent to 4930, while German DAX 30 appreciates by 0.23 per cent to 11,236. US stock index futures point to a slightly lower open on Tuesday morning as investors refrain from actions ahead of earnings release Apple and other companies.
In other news, it looks like Theresa May could win the vote today if she secures approval on the Brady Amendment. It is reported that Labour will be backing the Cooper Amendment, but on the condition of a three-month extension instead of the proposed nine months. If the parliament passes the bill, the government will be obligated to extend Article 50 if it doesn't secure a deal by 26 February. Despite a high uncertainty, risk of a no-deal exit is pushed further away. This in turn means that the likelihood of a second referendum is increasing. Meanwhile, the pound is stuck within a tight intraday range as traders prefer to sit on the fence ahead of the crucial vote and don’t want to take risks before the expected rise in volatility. An aggressive positive reaction could send the cable back above 1.32, while on the downside, the 200-DMA around 1.3060 serves as the immediate significant support.
Brent crude fails to show a directional impetus on Tuesday though the prices seem to have settled above $60 following an earlier dip to the $59.60 low. The market has barely reacted to imposition of US sanctions on Venezuelan energy sector as the measure was priced in earlier. Moreover, the US government gave exemptions for a number of companies including such giants as Baker Hughes and Chevron. These enterprises will proceed with operations in Venezuela until the end of July 2019. Besides, oil traders are now focused on the demand issues amid concerns over the US-China trade relations and further signs of slowing growth across the globe. Technically, Brent needs to confirm a break above the $60 handle to resume a more robust recovery. Considering a number of factors that could derail the vulnerable risk-on sentiments in the global financial markets, the barrel will hardly be able to receive a bullish boost any time soon. The significant upside target comes around $62, while a break below $59 will open the way for another leg lower.
After a daily close above the $1.300 yesterday, gold continues to rally on Tuesday. The prices refreshed May highs above $1.311 and looks set for further rally. “Dovish” Fed expectations are pushing the precious metal higher these days, which coupled with trade concerns and geopolitical instability adds to the appeal of the safe-haven metal. Citing the signs of slowing growth and inflation, the recent US government shutdown and its potential consequences, as well as the rising global risks, investors bet on a more cautious tone by the Federal Reserve that will likely signal a pause in the tightening cycle on Wednesday. In such a scenario, the dollar could weaken further and send the bullion even higher. On the other hand, the bulls may need to take a pause around $1.313 as overbought conditions are starting to emerge.
Nathan Lambert, Head of Global FX Analytical Department