S&P/ASX 200, US-CHINA TRADE WAR, UK ELECTION – Talking Points:
- S&P/ASX 200 stock index buoyed by US-China trade deal, Brexit hopes
- Cautious FOMC tone, close UK election outcome might sour sentiment
- Break of rising trend support just below 6600 may signal trend reversal
Australia’s benchmark ASX 200 stock index has tracked higher alongside an upshift in priced-in 2020 Fed policy expectations for over three months. The move echoes similar dynamics across most major risk-on assets, reflecting growing hopes for a US-China trade deal and the avoidance of a no-deal Brexit.
ASX 200 chart created with TradingView
Traders face potent event risk that may puncture this narrative in the days ahead. After weeks of heady promises of a foundation-building “phase one” trade deal, animosity between Washington and Beijing appears to be growing. The FOMC may be forced to admit this and temper recent optimism when it meets.
Meanwhile, the UK election still looks likely to bring a Conservative majority, but that may not be enough to conclusively banish no-deal Brexit worries. Indeed, it was ultimately opposition from her own party that denied former PM Theresa May passage of her Brexit agreement.
A disappointment on either front may sour sentiment, pushing the ASX 200 lower alongside anti-risk liquidation. A daily close below rising trend support set form the mid-August low – now at 6587.90 – exposes the October bottom at 6475.40. Critical resistance is at 6875.50, the July 30 high.
ASX 200 chart created with TradingView
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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