Markets Update Tuesday 14/01/2020 – Deal or no-deal?

Frankfurt – 14/01/20

Deal or no-deal?

Tomorrow is the day where the long-awaited phase one trade agreement between China and the USA is supposed to be signed. However, it would be not much fun if there weren’t any last-minute tensions and doubts before the signatures are finally on the papers. 

A press report had a negative impact: According to Bloomberg, despite the signing of a first trade agreement scheduled for Wednesday, customs duties on goods exported to the USA from China are not to be removed for the time being, according to circles. Instead, the tariffs are to remain in force until the elections for the US presidency, it was said. A reduction or abandonment of the tariffs would depend on whether China adheres to the provisions of the first trade agreement.

Before the planned signing of the first trade agreement, investors didn’t opt for too much risk.

US Markets at a glance

Although the Dow Jones reached a new record high of 29,054.16 points on the second trading day of the week, there were no clear signs of any significant fluctuations. In the end, it was enough for a slight increase of 0.11 per cent to 28,938.86 index points. On the other hand, the NASDAQ Composite dropped in the course of trading, ending the week 0.24 per cent weaker at 9,251.33 points.

The big US banks JPMorgan, Citigroup and Wells Fargo had already published their quarterly figures before the starting bell. Although the results from the US banking sector were surprisingly good, the geopolitical uncertainties surrounding Iran and North Korea are making investors cautious.

Far East Markets at a glance

The Asian stock markets did not find a common direction on Tuesday. While Japan, where no trading was conducted on Monday due to a public holiday, saw a sharp rise, China and Hong Kong recorded slight losses. Japan’s leading index, the Nikkei, climbed 0.73 per cent to 24,025.17 points by the close of trading. On the Chinese mainland, the Shanghai Composite fell by 0.28 per cent to 3,106.82 units, while the Hang Seng in Hong Kong was ultimately down 0.24 per cent to 28,885.14 points.

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European Markets at a glance

Investors on Europe’s stock exchanges held back on Tuesday. The EuroSTOXX 50 had practically not moved at the start of trading and then slid slightly into the red. In the end, it fell 0.13 per cent to 3,774.88 points at the end of the day. 

The Dax barely made any headway during the day and closed only five points up. However, at 13,456 points, the leading German index remains within reach of the record high reached at the beginning of 2018. In the last three trading days, the Dax had at times climbed above 13,500 points before it ran out of steam.

Given the high price levels, investors are not venturing out of cover but waiting for a possible breakout. A clear risk-on mode is not apparent, and many price movements are simply the result of individual portfolio adjustments at the start of the year.

Forex, gold, oil and crypto

Price movements remained within comparatively narrow limits, and market observers spoke of low impulse trading. 

The euro stayed above $1.11 in US trading on Tuesday. Most recently, the single currency traded at $1.1128. In early European trading, the exchange rate had still been at 1.1140 dollars.

On the other hand, the Yuan recorded gains. The Chinese currency benefited from the US government’s decision to no longer brand the People’s Republic as a currency manipulator. Robust foreign trade data from China for December also provided a boost. Against the US Dollar, the Yuan rose to its highest level since last summer.

The Swiss franc rose against the euro to its highest level since April 2017. The common currency was available for 1.0763 francs. There is speculation in the market that the Swiss National Bank (SNB) could be more reluctant to intervene against a Swiss franc appreciation because of the classification of the Alpine republic as a currency manipulator by the US in the currency market. 

Oil prices rose slightly on Tuesday. A barrel of North Sea Brent last cost $64.49. That was 29 cents more than on Monday. The price of American WTI crude oil rose by 12 cents to 58.17 dollars. Oil prices thus recovered somewhat from the heavy losses of previous trading days. One-month lows were reached on Monday. One important reason for this is the tendency for the US to relax its relations with Iran. Due to the lower risk of war, risk premiums in the oil market have dropped significantly.

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The price of gold also appreciated on Tuesday. At the end of trading, the troy ounce cost $1,548 – a plus of 0.15 per cent.

The cryptocurrency market experienced a sharp boost on Tuesday, with Bitcoin climbing almost 6 per cent to its two-month high of over $8,600. Most other major digital assets rose even sharper, with Bitcoin SV (Satoshi’s Version) skyrocketing by over 100 per cent to almost $400. The current number two in crypto-land Ethereum rose by 16 per cent to $169 while XRP appreciated by over 11 per cent to over $0.24. 

Corporate and world news

Visa buys start-up for more than five billion

The credit card giant Visa is taking over the financial technology start-up Plaid for 5.3 billion dollars. The companies announced a corresponding agreement on Monday after the US stock market closed. Plaid offers software for linking digital payment apps such as PayPal’s Venmo or Transferwise with bank accounts. The company was founded in 2013 and is based in the Californian metropolis of San Francisco.

US inflation remains subdued in December

US consumer prices rose only slightly in December, suggesting that inflation remains subdued. As the US Department of Labor reported, prices rose on average by 0.2 per cent over the previous month. Economists had previously expected an increase of 0.3 per cent. The price increase of 0.3 per cent reported for November was confirmed.

As a result, annual inflation rose to 2.3 per cent (previous month: 2.1 per cent). The Federal Reserve is targeting an inflation rate of around 2 per cent.

In the core rate, which excludes the particularly volatile prices for energy and food, prices rose by 0.1 per cent compared to the previous month. Economists had expected a rate of 0.2 per cent. Annual inflation was 2.3 (last month: 2.3) per cent.

Moody’s lowers outlook for the eurozone

Given the high level of public debt, the rating agency Moody’s is more sceptical about the creditworthiness of states in the eurozone. The outlook for the solvency of countries in 2020 has been lowered to “negative”, the agency announced on Tuesday. Only a year ago it was rated “stable”. According to the rating agency’s assessment, the slowdown in world trade will continue to weigh on the economy in the currency area in 2020.

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A monetary and budgetary policy that supports the economy could indeed provide some stimulus. However, this is unlikely to give a substantial boost to growth. Overall, the agency expects gross domestic product (GDP) in the eurozone to increase by 1.2 per cent in 2020.

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