Markets Are Optimistic But Remain Weary
FxPro Financial Services Ltd | Aug 17, 2018 04:36AM ET
The markets remain on cautious positive mood. MSCI for Asia-Pacific region adds 0.4%, continuing gently recover for the second day in a row. American markets feel more confident. On Thursday S&P 500 added 0.8%.
However, moderate growth in demand for risks looks like a development of profit-taking rather than evidence of a sustainable markets turnaround. The negative tendencies can again come to the forefront, resuming escape from risks.
The growth of markets is facilitated by the early start of negotiations between China and the United States on trade issues for the first time since June. It is worth noting that the status of officials involved in the negotiations is not very high, which eliminates the possibility of breakthrough decisions in the near future. Obviously, there will be more necessary rounds of negotiations at the highest level to resolve the trade disputes fully. The dynamics of the Chinese offshore yuan is a good indicator of investor sentiment. After yesterday powerful increase by 1.3% to the dollar, CNH have stabilised near 6.87 on Friday morning.
The Turkish lira has added on Thursday in response to the tightening of the country’s Central bank policy and the promises of assistance from Qatar and Germany. Panic has stopped, but still there are not enough reasons for long-term optimism. The U.S. have made it clear that the sanctions imposed on steel and aluminium are a “security issue” and will not be lifted even if the Turks release the American pastor, moreover they threatened with new sanctions. Against this backdrop, the Turkish lira has stopped the recovery rollback and is trading near 5.8.
Could Italy become a new Greece?
The single currency has added 0.4% to the dollar on Thursday, having calmed to the beginning of Friday trading near 1.1380. As in the case of China and Turkey, the euro rebound masks an unpleasant trend in Italian bonds. In the past month 2-years notes yield has increased from 0.6% to 1.4%. This is a clear indication of the concern of investors around the country's considerable debt burden.
For comparison, the yield of German bunds with similar maturity almost did not change in this period, remained at the level -0.63%. The dynamics of the debt market may be ignored for some time by a single currency that looks unduly oversold against the backdrop of Turkey's problems.
Get The News You Want
However, the further yield growth on the Italian bond market could come to the markets focus very soon and exert considerable pressure on the common currency, as it was with Greece case 7 years ago. The situation looks very similar: weak growth for many years, excessive debt burden and populist government. Especially disturb the fact that the economy of Italy is almost 10 times more than Greek.
Alexander Kuptsikevich, the FxPro analyst
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.