Markets Mixed as Investors wait for US Earnings: Pound FlatThe mood across financial markets was mixed this morning as concerns over China’s economic outlook, Brexit developments and a prolonged US government shutdown weighed on risk sentiment.
Anticipation is set to mount as market players prepare for US earnings season with numbers from Netflix expected this afternoon. Although earnings kicked off on a positive note as upbeat US bank earnings boosted investor confidence, it may be too early for any celebrations. It must be kept in mind that Apple has already issued Q1 profit warnings. Markets will be looking for signs of other multinational US companies impacted by trade tensions – namely in the technology and agriculture sector.
Sectors that could surprise markets may be consumer staples, healthcare and utilities as they tend to perform in times of uncertainty. Will this be a great earnings season? Confirmation is still needed from other key sectors to evaluate how consumers are behaving.
There is a strong possibility that the government shutdown negatively impacts results and outlook for companies. Corporations that obtain a significant portion of their revenue from government businesses could be punished by delays in payment and contracts. Although yesterday was somewhat positive for stocks, investors should remain diligent and alert. With the fundamental drivers weighing on global sentiment present, stock markets remain vulnerable to downside shocks. Geopolitical risk factors such as trade tensions, Brexit uncertainty, political risk in Europe and instability in Washington will continue draining investor confidence. Global growth fears and growing concerns over China’s economic outlook are likely to promote risk aversion – ultimately reducing appetite for global equities.
Sterling searches for next catalyst
The British Pound was clearly unfazed yesterday evening despite Theresa May narrowly surviving a vote of no-confidence.
The anti-climatic price action suggests that this outcome was already heavily factored in. With Theresa May racing against the clock to present an alternative Brexit deal to Parliament, the Pound seems to be on standby mode. If May is unable to secure further concessions on the Irish border backstop from the European Union, expectations are poised to mount over a second referendum being in the cards. With Sterling’s outlook dictated by Brexit developments and political situation at home, traders should brace for volatility ahead.
Focusing on the technical picture, the GBPUSD’s direction remains influenced by Brexit newsflow. There needs to break above 1.2920 to open a path higher towards the psychological 1.3000 level.
Commodity markets – Gold
It has been a lackluster trading week for Gold thus far with the metal bouncing within a modest range. Price action suggests that the metal is searching for a fresh catalyst to make the next major move. Resistance can be found around $1296 and support at $1280. A breakout above $1296 will open the gates towards the psychological $1300 level and beyond. On the other hand, weakness below $1280 is seen triggering a decline back towards $1272.