Trade Wars & Brexit

It’s been a very volatile period for the equities markets recently. Last week we saw heavy losses across the board as the market responded to news of rising tensions between the US and China. Following the US’s announcement of a fresh set of trade tariff to be applied to China, China responded by sharply devaluing the Yuan, leading to the US labelling China a currency manipulator. The market is now fearful that the next round of trade talks due to take place in September will be abandoned, leading to further volatility.

However, equities were able to recover strongly from initial lows as a wave of central bank easing, headline by a larger than expected .50% rate cut by the RBNZ, helped ease investor sentiment. Indeed, the market is now widely expecting the Fed to have to ease further this year despite the central bank downplaying the likelihood of further easing as it cut rates last month.

The key driver behind the ongoing downside in the UK is the growing risk of a no deal Brexit. Boris Johnson who recently took over from Theresa may as the new UK PM has vowed to take the UK out of the EU on October 31st do or die and with both the UK and the EU still at loggerheads it looks like a no deal Brexit is far more likely than a deal at this stage. The BOE has been very upfront in its warnings over the risks of such an outcome saying that a no deal Brexit could lead to a recession in the UK which would likely see the bank needing to cut rates in order to back stop the economy.

Technical Perspective

S&P 500

The IndeX Files 13-08-19 S$P500

You can see clearly the extent of the initial sell off last week, followed by the sharp recovery. Price broke below the rising trend line from 2019 lows to test below the 2798.34 level before reversing and trading back above the broken trend line. As of today however, price has once again rolled over and we are now trading back below the 2980.55 level putting focus on a fresh move down to the 2798.34 level which, if broken, paves the way for a much deeper move.

FTSE 100

The IndeX Files 13-08-19 FTSE

As you can see it’s a similar story of deep losses and recover although the losses have been far more severe and the recovery not as large as in the US. The FTSE tested the 7081.8 level low last week, briefly piercing beneath before reversing to trade back above the 7262.6 level. However, the level has since been broken again and price is turning lower putting focus on a fresh test of the 7081.8 low.

DAX

The IndeX Files 13-08-19 DAX

The DAX recovered sharply off last week’s test of the 11360.6 to trade back up to test the 11832 level which has so far held as resistance, turning price lower. The 11593.9 level is the next key support to watch ahead of a move back down to the 11360.6 lows. To the topside, the key level to watch is the 12191.7 region with a retest of the broken bullish trend line just above.

Nikkei 225

The IndeX Files 13-08-19 Nikkei 225

The recovery in the Nikkei failed to break back above the 20780.01 level which has held as resistance for now, turning price lower. The index is currently testing the 20282.45 low which is the local support ahead of the bigger 19994.09 level.

Please note that this material is provided for informational purposes only and should not be considered as investment advice. Trading in the financial markets is very risky.

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