Market News & Analysis
Fear could linger after toasted trade deal
Ken Odeluga December 6, 2018 11:01 PM
The market’s verdict on the trade deal will take more than Beijing and Washington platitudes to shift.
On the face of it, the 550-point collapse in Dow futures that immediately followed news that a senior Huawei executive was arrested looks like an over-reaction. If so, it has with legs. The second half of the European session sees indices barely off Thursday’s worst, keeping the STOXX gauge close to a fresh two-year low, its second since late October. The Dow gushes another 400 points lower.
The velocity of these declines looks past ostensible disconnects between Huawei and the trade dispute. True, the company is publicly owned, and the case involves alleged sanction violations. But Huawei’s state links are hardly no secret. Decades-long affiliations have smoothed the regulatory permissions it required to become the world’s second-largest smartphone maker in just over 30 years. The arrest of Huawei’s chief financial officer, the daughter of founder, Ren Zhengfei, a former People’s Liberation Army officer, won’t pass as ‘unrelated.’
November gains almost wiped
Price action over the last 12 hours, which erases almost all late-November gains on Wall Street, Shanghai/Shenzhen and in Europe is the market’s verdict. Furthermore, Huawei recently lost authorisations in the UK, New, Zealand, Australia and the States. Its participation in major new international transactions could also be definitively over. Anticipation of a messy extraction from contracts, partnerships, supply chains and more, keeps technology sector upset on par with tumbles in trade-sensitive car, and metal shares. Elsewhere, OPEC and Russia appear to hint at a smaller cut than the market would like, dragging energy sectors. That’s all broad equity segments under a cloud. Already upended by Treasury yields’ acceleration to three-month lows, volatility in major currency pairs remains unsettled too. Volatility goes up a notch as safety bids reappear in dollar, the yen and bunds.
‘Fear gauge’ still tethered
With Friday’s payrolls in view, soft readings in the run up, including ADP’s private assessment add to cross-market gloom. That will deepen if official data also disappoint. The extradition hearing of Huawei’s arrested finance chief is also scheduled for Friday. So, one way or another, CBOE’s VIX volatility index may have backing to extend a three-session run higher. Should it approach peaks around late 27-29 on the way to the round 30, feedback into aversive sentiment could intensify. In reality, that may be a fairly big ask. Since its second biggest one-day vault of the year in October, the ‘fear gauge’ has been active, but relatively restrained. Still, open questions on everything from Brexit, oil, trade and more, offer ample conditions for vol. to go up a gear in the week ahead.
Technical chart: VIX Volatility Index - daily intervals
Source: Refinitiv/City Index
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.