G20 summit was rather productive. Trade war escalation should not be expected between the US and China at least in 90 days ahead. That is exactly the term which has been agreed by the leaders of the two largest world’s economies - Donald Trump and Xi Jingpin - last Saturday. Both sides should reach a consensus during that time, if that did not happen, then additional import tariffs would be imposed.
Italian government made some efforts to meet the Eurocommission's requirements, seeking options to cut the budget deficit for the next year, which is a positive signal for Euro. British Prime Minister Theresa May, most likely, managed to convince the Parliament that the European Union would not offer better Brexit deal conditions. The vote is scheduled for the next week, December 11.
Although, Chinese tariffs topic is not the whole thing. German car manufacturers’ top managers (VW, Daimler, BMW) will go to Washington this week. The target of that visit is to lower import tariffs for transport vehicles assembled in the EU. New tariffs of 25% might impact the economic growth in Eurozone. The European automotive sector shares already plunged for almost 25% this year.
We expect a rather bullish trading week full of the factors described above. Key drivers of the economic calendar will be the following.
The Federal Reserve Chairman Jerome Powell's speech on Wednesday, which will be followed by the Beige book report. Markets reacted extremely negative for his latest press conference, selling the US dollars on regulator's softer rhetoric. Probably investors misunderstood Powell, that will be clarified on Wednesday.
US jobs market data is due to release this Friday. The lowest unemployment in the last 49 years, strong payrolls figures and the stable growth in average earnings lift expectations of further tightening in monetary policy by the regulator in the United States. While the temporary cessation in the US-China trade war will support the equities markets.
Main events will happen on Wednesday and Friday in Europe as well. ECB President Mario Draghi will speak in the middle of the trading week. Retail Sales report and EU business activity index will be published later. Eurozone GDP report for the third quarter of 2018 will be released on Friday.
Another important story was in focus of the G20 summit, besides the US-China relationship. A new trade agreement US-Mexico-Canada has been finalized whereas it’s been just agreed recently. The replacement of the old NAFTA agreement will take effect after the countries parliaments’ approval. That should reinforce the demand for high-risk assets In addition to the temporary cessation between China and the US while growing oil prices (which surged 5% on Monday morning) will support the Canadian dollar.
Other volatile news is expected this week except for the latest summit positive development. Canada will publish labour productivity in the third quarter on Tuesday. The Bank of Canada will meet for the interest rates decision on Wednesday. An ‘unchanged’ verdict is widely expected, however, the trade deal could untie the regulator’s steps in the future. The latest macroeconomic data was not too positive but Bank of Canada Governor Steve Poloz’s change in rhetoric, supported by the agreement and trade war cessation, would support the Canadian dollar at the end of the day.
The sharp spike of investors’ and traders’ risk appetite signals a selling pressure for the US dollar which should support Gold as the consequence as it becomes cheaper for the holders of other currencies. That’s a perfect time for worldwide central banks fur buying, filling up the gold reserves. The same way the Chinese government acted on falling gold prices while devaluating local currency.
Buying gold and selling the US dollar looks rather logical now. The Federal Reserve is expected to hike the interest rates this month, increasing the cost of borrowings nominated in world’s reserve currency for emerging markets. Therefore, hedging in favour of gold is rather a need nowadays.
Gold price strengthened for more than 8 dollars per Troy ounce, while strong resistance levels are seen at $1230.0 and $1240.0. Breaking through those levels would open the door for bull investors towards $1290.0-1300.0.