Stock markets were vulnerable to downside shocks on Tuesday as investors lost appetite for risk ahead of the Trump-Xi summit this week. Asian shares have already discarded short term gains amid the cautious trading mood with risk aversion exposing European equities to further losses. Although UK’s FTSE 100 attempted a miraculous rebound during early trading via sterling weakness, sellers simply exploited the technical bounce to drag prices lower.
Wall Street may be in store for further punishment moving forward as risk-off is the name of the game ahead of the meeting between Donald Trump and Chinese President Xi Jinping. While the fanatical optimism over Trump’s proposed fiscal policies boosting US growth has fueled the phenomenal stock market rally, the rising protectionist fears and concealed concerns over the pro-growth agenda falling short of expectations could catalyze an unexpected selloff.
Flight to safety elevates gold
The amalgamation of overall geopolitical concerns, political risks in Europe, Brexit woes and Trump uncertainties have boosted the appetite for safe-haven assets with gold in high demand. This yellow metal has sprung towards $1260 on Tuesday with further inclines expected as bulls exploit the market anxiety to install fresh rounds of buying.
The source behind this wave of risk aversion is the uncertainty gravitating around the pending Trump-Xi summit which investors will be paying heavy attention towards. With participants already noticeably jittery, any potential complications in the meeting could accelerate the flight to safety ultimately elevating gold’s price further. The visible fact that gold remains resilient despite dollar’s resurgence continues to highlight how risk aversion has become a key theme this week.
From a technical standpoint, the yellow metal fulfills the prerequisites of a bullish trend on the daily charts as there have been consistently higher highs and higher lows. A breakout and daily close above $1260 could open a path higher towards $1300. Bulls remain in firm control above the previous higher low at $1240. A situation where bears manage to bring prices back below $1240 simply invalidates this daily bullish setup.
Commodity spotlight – WTI
WTI crude descended towards $50 on Monday after the rebound in Libya’s oil output over the weekend and persistent increase in U.S. drilling compounded to the oversupply concerns. The oversupply fears have been a major theme which has ensured oil remains depressed for prolonged periods.
With global inventories remaining stubbornly high despite OPEC’s valiant efforts to stabilize oil markets and U.S. shales resurgence questioning the effectiveness of the supply cuts, buying sentiment is frighteningly low. Although there are speculations of OPEC extending the supply cut deal by another 6 months to fight the oversupply woes, optimism is rapidly fading over the cartel’s ability to elevate oil prices.
WTI crude may be in the process of a technical bounce which could test the $51 pivotal level. Bears need to break back below $50 to reclaim control with targets stretching back towards $47.
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