Markets traded up on a weak agreement

Markets traded up on a weak agreement

14 October 2019 from Carlsquare

As expected, the US and China managed to reach an agreement at the lowest level. That is, an agreement that states the US should not raise tariffs on October 15, as previously planned. In exchange, China will buy agricultural products for $40-50 billion and open the Chinese market for US service companies. In addition, China should be more open about its currency. Given that China has a great need to buy agricultural goods, the agreement is very thin. Everything is really pushed forward to future meetings, which created a buy the rumor, sell the news-reaction on the stock exchange.

President Trump called this successfully reached agreement Phase 1. Immediately, the market began to worry about how many phases the negotiations might need. It took about 22 months to reach this first phase, so everyone is beginning to realize that the trade war is something we will have to live with for a long time. Also, we believe that the Chinese prefer a minor agreement with Trump, but for the greater agreement they prefer to meet with a Democrat as president.

It may also be noted that the agreement has not yet been signed. This will take place over the next four weeks, perhaps during the APEC meeting in Santiago in mid-November. Thereafter, Phase 2, which is considerably more difficult to reach an agreement upon, will be decided by December 15, when the next tariff increase is scheduled. The advantage in the short perspective is that the issue is temporarily postponed on the agenda.

S&P 500 gapped up above a cluster of resistance levels on the news about the Phase 1 agreement. On the upside, the 3 000-level make out the first resistance level followed by levels around 3028. However, the selling pressure increased during the last trading hour creating a bearish inverted hammer doji signaling that further sell off may take place. The first support level on the downside can be found around 2 950 followed by MA50 and MA20. 

A similar bearish inverted hammer doji can be found in tech heavy Nasdaq. The first support level on the downside is located around the 7 770-level, just slightly below MA20 and EMA9 making up a second line of support levels. The falling upper line of a non-symmetric triangle formation, right above the 7 900-level makes up the first level of resistance. Previous top from the end of July is the second resistance level:

EUR/USD breaks out

The agreement weakened the demand for USD as a currency of safety. Interesting is that the EUR/USD broke up from a falling trend channel. The question is whether the momentum is strong enough for the currency pair to break above MA50, which is the first resistance level on the upside. On the downside the 1,1-level acts as a first support level:

Europe stock markets gained on the US/China agreement

The German DAX closed last week slightly above its previous tops from September in the back of the trade agreement. The earlier top from June/July is now in sight making up the first level of resistance. Worth noticing is that DAX was closed during Friday´s set back in stocks which came during the last trading hour. On the downside the first level of support is made up by EMA9 followed by MA20:

Swedish OMXS30 also saw some good gains, closing above the falling trendline. The 1 670-level must be broken before the previous top from late April can be tested. MA20 act as first support level on the downside followed by EMA9 and Fib 23,6:

Is the momentum strong enough for further upside in Ericsson?  

Swedish Ericsson has gained momentum from the news that the US may support the 5G expansion through loan financing. Management has a challenging decision to make. Accepting the loan can hurt the relationships with China, a market on which Ericsson wishes to grow. MACD has generated a buy signal but Fib 38,2 is yet to be broken on the upside. If broken falling MA100 pushes downwards from above around SEK 84. The potential downside may appear larger. EMA9 is the first level of support followed by Fib 23,6 around SEK 79,3. Important to note is that Ericsson will host its capital market day on Thursday this week and that may move the share:

Another setback for Facebook’s Libra

Facebook is losing more partners in its development with the crypto currency Libra, planned to be launched in 2020. Late Friday Mastercard, Visa and Ebay informed about their dropout. The share is trading below MA50 and MA100, which are levels that may be difficult to break given the news. MA200 on the downside may function as a magnet for the share and a strong support level. However, in case of a break out on the upside above MA100 the next resistance level can be found around USD 190:

Oil jumped but cluster of resistance levels linger ahead

WTI oil took a jump on the agreement between the US and Chine which reduced the fear for decreasing demand. MA20, MA50 and MA100 remain as a first levels of resistance. A break above and Fib 38,2 meets up around 56,7 USD/barrel. EMA9 act as support on the downside followed by the 52-level:

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This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

11/11/2019 20:59:37

 

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