What a week it has been! We are barely a couple of hours into the trading day on Friday morning, but there have been all sorts for investors to digest following the conclusion to both the UK General Election and US-China trade tariff standoff. With so much happening, I thought it best to use this blog today to share a few charts with you and cut through the cacophony (rest assured, there was plenty to learn from our Checklists earlier in the week, though Wednesday’s recording already seems rather distant!).
This week presented a raft of obstacles that the market had to overcome in order for the recent rally to be sustained. It began with the Fed’s rate decision (unchanged) before attention turned to their European counterparts at the ECB. There were no real surprises here, which enabled traders to focus on negotiations between the US and China, hoping for the December 15 tariff imposition to be averted. With the UK General Election result looming, Bloomberg reported the news that an agreement had been reached to call a truce and half the latest wave of proposed tariffs on $160 billion of goods from China...
The news saw US equity futures spike higher, rising to a new all-time high as investors breathed a collective sigh of relief...
As you may recall, our US Business Cycle Checklist recovered this month and is supportive of equities and correlated risk assets with a score of +2.5.
The next target for the S&P 500 (continuous futures contract shown) is around 1.7% higher at 3234, according to technical analysis using Fibonacci levels.
Meanwhile, the VIX (also known as the ‘fear index’) dropped below 13 - a level associated with calm amongst investors.
After the close of the European and US markets on Thursday, the projected 'results’ of the UK General Election exit poll at 10 pm GMT indicated a clear majority for Boris Johnson’s Conservative party - defeating Jeremy Corbyn’s Labour by a considerable margin (the best result for the Conservatives since Margaret Thatcher was elected in the late 1980s). This was ultimately a far more convincing result than many speculators had been expecting, and it resulted in a relief rally throughout UK asset markets overnight and into this morning’s open.
The pound gained more than 2% following the exit poll, holding above 1.34 having tested 1.35 intraday.
The news was most apparent in domestic UK stocks represented in the FTSE 250 Index, which gained +5% at the open (as domestic stocks are less exposed to overseas demand linked to fluctuations in their domestic currency). A fine bellwether for the core of British business!
Even with the currency effect working against the export-focused multinationals of the UK’s FTSE 100 Index constituents, the benchmark rallied +1.5% in line with gains seen across other European gauges.
With the UK General Election and US-China tariff event risks passing, there looks set to be a large scale unwind of downside hedges in risk markets. And with the Fed earlier this week telling the market not to expect any further rate cuts in 2020, and our gold Checklist simultaneously pointing negative at -1.5, one might expect gold to sell off against this backdrop.
There has already been a couple of profitable short setups in gold this month as we identified in real-time in our weekly Trading Club video analysis for our members, and this is something I will have on my watchlist as a potential short again going into the new year.
I hope you found this analysis helpful and see how as markets drivers become increasingly dynamic, it has never been more important to trade with the odds on your side with a proven process. If you would like to join us for our full analysis including new insights each week or learn from the ground up with online tuition from Lex in our Million Dollar Traders online course, then join us today and take your financial knowledge to the next level right away!Disclaimer: Our service is intended for educational and informational purposes only and should not be considered investment advice. Do not make any decisions based on the articles and material presented on www.lexvandam.com and never trade with money you cannot afford to lose. We cannot be held responsible for your trading results. For more information, please check Risk Disclosure - T&C.
Have a great weekend,
James Helliwell | Chief Investment Strategist