U.S. futures are kick-starting the week on the back foot and the risk assets are out of luck again. Investors are less optimistic because of the lack of any progress on the trade negotiations between the U.S. and China. Nonetheless, this particular week is going to be full of actions and investors need to be fully prepared because of issues around Brexit and U.S.-China trade relation.
Fears about global growth running slow are pushing the bonds higher. The equity rally which we have seen so far this year is under a major threat. The S&P 500 is up 8.02% year-to-date, the NASDAQ index is up 9.99% YTD and the Dow Jones is up 7.63% YTD. These gains can vanish fairly fast if the above-mentioned concerns continue to disturb the markets.
We are going to start the week with the most important economic reading for the U.K.: GDP m/m reading. It is widely expected that the number is going to show the economy was flat in December. As for the overall progress during the quarter, we may see a little growth but nothing overwhelming at all. A lot of emphases will also be on Brexit developments. Theresa May will be fighting for more time after her recent defeat in Brussels. She has promised that she will be able to secure another deal and put that deal back in the parliament for a vote. But, the time is running out and there is no progress so far. She has asked the opposition leader Jermyn Corbyn to give her some more time, until 26th February, so that she can negotiate some parts of the deal with the EY.
The British pound is clearly vulnerable to this and it is trading below the critical level of 1.30 against the dollar. For bulls to remain optimistic about the uptrend, the price really needs to break above 1.30 other the path of the least resistance will remain to the downside.
Back in the U.S., trade negotiations between the U.S. and China are going to take the center stage and the tone of these negotiations is changing every day. Given that the deadline is just around the corner before the U.S. slaps more tariffs on China, it is highly likely that both sides choose to extend the current deadline. As long as the U.S. does not slam more tariffs on China and the negotiations process continues, I believe the overall situation would remain a lot more optimistic. Of course, betting on Trump is not something which many investors feel comfortable and it is something you will have to keep in mind as a trader.
As for Bitcoin and Ethereum, the sentiment seems to find some strength today as Ethereum price has strongly defended its support zone of $100. I think as long as Ethereum price stays above the $100, the hopes would be that we have seen another bull run soon or the worst case is just consolidation.