October 21, 2019
We entered the weekend with another big vote due in the UK on Brexit (perhaps a final vote).
What did they do? They delayed it. But the delay came with an amendment that makes a "no deal" Brexit less likely. With that, and with the drama last week in Brussels, it looks almost like Trump's deal with China. It looks like capitulation from both sides in both issues (Brexit and U.S./China trade). Everyone seems to be acknowledging, given the state of the global economy, it's time to move on.
Most importantly, for markets, this looks like we have removed another overhang of uncertainty.
Now, where do we look to take the market temperature on the Brexit issue? The British pound, which held up nicely today, despite the delay and the continued debate in UK parliament throughout the day. And, as you can see, the pound has broken the downtrend of the past year and a half.
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The next spot to look for the temperature on a Brexit resolution is German bunds. And yields on German debt are testing a technical trend break from deep negative yield territory, signaling an improving outlook.
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With German yields leading the way, the euro benefits, which makes this chart the next place to look. And the euro is testing a big trend break too.
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With the euro threatening a bullish breakout, and with Trump and China allegedly forming a currency pact, it's no surprise the dollar outlook should be lower. And this chart confirms it, with a breakdown underway.
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If the prospects of a no-deal Brexit and an indefinite trade war have now been removed from the probable scenarios, then the outlook for gold deteriorates.
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As you can see, the trend in gold looks vulnerable here too.
But, if the removal of the trade war threat does indeed unleash animal spirits in the economy, especially with central banks in an ultra-easy stance, inflation could start finally moving…and quickly. Then you buy gold again.
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