After a lacklustre start, markets turned on a dime- or more specifically on a tweet. US President Donald Trump backpedalling (via Twitter) on plans to launch an attack in Syria encouraged a rebound in sentiment. US equity futures jumped, European markets reversed early losses, and related or not, Cryptocurrencies soared.
The price of Bitcoin surged double digits to break back over $8000. The renewed interest in cryptos might relate to the need for wealthy Russians and Chinese under pressure from new sanctions and tariffs to covertly send money overseas. Bitcoin’s price surge could well be enough to capture the imagination of traders in what is still a very speculative market.
Trump’s tweet raises hopes for a more considered response to the alleged chemical attack in Syria but the movement of warships into the region tell another story. While markets switch to a more ‘risk-on’ mood, crude oil prices fell back from 3-year highs. Oil traders are pricing in a lower risk premium to an escalation in the Syria war and a report from OPEC showing a jump in world oil supplies in March.
The airline sector saw some of the most activity in the UK stock market after British Airways-owner IAG revealed it had bought a stake in rival carrier Norwegian Air. Investors questioned the merits of a possible merger but recognised it could be a boon for other budget airlines. For one, shareholders may be reticent to approve another deal so soon after acquiring Aer Lingus. And two, it is an upfront cost to IAG that could otherwise be spent improving customer experience. If one assumes IAG will lift the fares and cut routes operated by Norwegian, then it reduces competition for the likes of EasyJet, Ryanair and Wizz Air.
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EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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