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S&P 500, Crude Oil Price Rally in the Hands of Trump & Trade Talks

S&P 500, Crude Oil Price Rally in the Hands of Trump & Trade Talks

2019-01-09 00:30:00
Daniel Dubrovsky, Analyst
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Asia Pacific Market Open – US China Trade Talks, US Shutdown, Crude Oil, S&P 500, Canadian Dollar

  • US China positive trade talk bets pushed S&P 500 higher as market mood continued improving
  • Sentiment-linked crude oil prices entered longest winning streak in about 8 months as CAD rose
  • All eyes on Donald Trump speech as trade talks enter into a third day, will stock gains continue?

We recently released our Q1 forecasts for currencies like the US Dollar in the DailyFX Trading Guides page

The S&P 500 entered its third consecutive winning streak which is the best spree since late November 2018. This has brought gains of around 10% since it bottomed in December. The backdrop for Tuesday’s optimism seemed to have stemmed from bets of positive outcomes on US China trade talks which are being extended into a third day.

Earlier in the day, US President Donald Trump dropped hints that negotiations are going along nicely, adding that he wants a deal soon to boost the markets. The general improvement in market mood led to gains in Asia, European and US benchmark stock indexes. Sentiment-linked crude oil prices rose for a 6th day, adding to its best climbing streak in about 8 months.

Crude oil also received a boost later in the day when the American Petroleum Institute reported that stockpiles contracted about 6.13m bbl last week. As a result, the Canadian Dollar was one of the best performing majors as it closely followed the commodity. Canadian government bond yields also rallied, perhaps reflecting fading BoC rate cut bets ahead of today’s monetary policy announcement.

The US Dollar had a rather choppy session, but ultimately finished the day cautiously higher. While rising bond yields supported the currency, fading demand for haven assets worked against it. Surprisingly, the pro-risk New Zealand Dollar weakened despite the rise in stocks. Partial gains in the more liquid and higher-yielding US Dollar might have prevented NZD from outperforming.

As the markets transitioned into Wednesday’s Asia Pacific trading session, there was a sudden and quick burst of aggressive ‘risk on’ trade. The Australian and New Zealand Dollars pushed higher as the anti-risk Japanese Yen fell short. The US Dollar also saw a slight pullback. This may have been as a result of Japanese shares following Wall Street higher.

The Topix Index opened almost 1 percent higher. Top-tier event risk during the session looks to be a speech from US President Donald Trump around 2:00 GMT. He will be addressing the nation about border security amidst a prolonged government shutdown which entered its 18th day. Newswires reported that he will not be resorting to declare a national emergency.

Unless one is avoided, the economic implications may weigh on sentiment and domestic equities ahead. Markets will also be awaiting more progress on US China trade talks. Should the results be in line with what the White House is alluding to, the recovery in market mood since December may extend. This risks weakening the Japanese Yen while boding well for sentiment-linked currencies such as AUD which may extend gains this week.

US Trading Session

S&P 500, Crude Oil Price Rally in the Hands of Trump & Trade Talks

Asia Pacific Trading Session

S&P 500, Crude Oil Price Rally in the Hands of Trump & Trade Talks

** All times listed in GMT. See the full economic calendar here

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--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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