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During the previous trading session, the yellow metal was supported by the 55-hour and the 100-hour simple moving averages. On Thursday, the rate was trading at the 1,294.33 mark.

Most likely, the gold will be retraced by the medium pattern line at 1,294.33 to push the rate to trade sideways. Moreover, it seems that the yellow metal will be trading at the 1,292.00 level during the day.

However, the gold could break the resistance of the medium pattern line at 1,294.33 to surge towards the 1,298.00 level.

Can talks with opposition parties yield a solution?

The Brexit saga continues to dominate the headlines after Theresa May’s government narrowly – albeit predictably – survived a no confidence vote in parliament on Wednesday. This comes 24 hours after her deal suffered a humiliating defeat in parliament and as she seeks to engage in discussions with opposition parties in an attempt to overcome the impasse.

While opposition leaders have – mostly – welcomed the opportunity to take a more active role, they all appear to share the same disdain for the no deal option, with opposition Labour leader Corbyn insisting it is removed before any discussions can take place. Unfortunately for May, this is an important negotiating tool with the EU and is not something she will therefore let go of easily, making the impasse that much harder to overcome.

The next few days in the Brexit soap opera may not be as eventful as the last but they will be extremely important as Theresa May prepares to present plan B to parliament on Monday before likely departing to Brussels to engage in further negotiations. Andrea Leadsom has confirmed this morning that a statement and motion on the next step will be put forward on Monday, with a full day of debate taking place on 29 January.

Traders have been very quick to respond to developments in parliament over the last few days which has yielded very little apart from a surge in volatility. The pound may be higher against the euro and yen but this more than likely reflects the weakness we’ve seen in both across the board than sterling itself. Against the dollar, which has made no progress for most of the last 48 hours, the pound is relatively flat, despite there having been large moves in the interim.

Thursday January 17: Five things the markets are talking about

With the U.S government shutdown and the U.K’s Brexit standoff ongoing, coupled with the drawn-out Sino-U.S trade situation, there are enough reasons in play for investor market caution.

Overnight, the demand for risk assets has taken a step back again, with global equities trading under pressure ahead of the North America session on investor concerns of rising tensions between the world’s two largest economies, U.S and China.

Some of this negativity has been offset by a better than expected start to the U.S earnings season. In equities, Banks led the decline on disappointing trading revenues, while tech shares sentiment was dinged on news that U.S prosecutors are investigating China’s Huawei Technologies for corporate espionage.

The ‘big’ dollar has edged a tad higher against G10 currency pairs along with the yen (¥108.77), while U.S treasuries and European sovereign bonds are better bid ahead of the U.S open.

Sterling (£1.2871) has been relatively quiet, as the odds of a ‘soft-Brexit’ have risen again now that PM Theresa May narrowly survived a “no” confidence vote held yesterday – if there was a general election, the likelihood of a ‘no-deal’ Brexit would have risen.

On tap: U.S ADP non-farm employment change and Philly Fed manufacturing (08:30 am EDT).

1. Global equities produce mixed results

In Japan, the Nikkei eased overnight, reversing earlier gains, as investors remained concerned about the global economy and trade war tensions. The Nikkei share average closed down -0.2% after its intraday bounce towards a new four-week high. The broader Topix retained its initial gains to end the day up +0.35% on speculation that next weeks Bank of Japan (BoJ) monetary policy meeting could consider changing the composition of its ETF purchases with heavier emphasis on the Topix.

Down-under, Aussie stocks closed at two-month highs, supported by stronger materials and energy stocks. The S&P/ASX 200 index rallied +0.26% for its third consecutive session of gains – it had rallied +0.4% in the previous session. In S. Korea, the Kospi stock index traded steady with no new risks, while Brexit uncertainties remained and Beijing plans to inject more cash into its financial system. At the close, the index was +0.05% higher.

In China, stocks ended weaker overnight on signs of sluggish economic growth and as Chinese Premier Li forecasted a “rigid year ahead.” At the close, the Shanghai Composite index was down -0.4%, while China’s blue-chip CSI300 index ended down -0.6%. In Hong Kong, the Hang Seng Index closed lower by -0.7%.

Note: To avert a cash crunch, the People’s Bank of China (PBoC) injected a net +$83B into their financial system on Wednesday, and added ¥380B more yuan overnight.

In Europe, regional bourses trade mostly lower with the DAX underperforming on Chinese growth fears, while in the U.K, the FTSE is under pressure despite PM May winning a ‘no’ confidence vote – Brexit uncertainty continues to weigh on sentiment.

U.S stocks are set to open in the red (-0.39%).

Indices: Stoxx600 -0.15% at 350.06, FTSE -0.45% at 6,831.75, DAX -0.49% at 10,878.19, CAC-40 -0.32% at 4,795.12, IBEX-35 =0.05% at 8,917.00, FTSE MIB -0.13% at 19,452.50, SMI +0.44% at 8,909.20, S&P 500 Futures -0.39%

2. Oil prices slip as U.S crude output nears 12M bpd, gold lower

Oil prices are under pressure as U.S crude production nears +12M bpd. Not helping are market concerns about weakening global demand.

U.S. West Texas Intermediate (WTI) crude futures are at +$51.92 per barrel, down -39c, or -0.8% from Wednesday’s close, while Brent crude oil futures are down -37c, or -0.6%, at +$60.95 per barrel.

EIA data this week showed that American crude oil production reached a record +11.9M bpd in the week ending Jan. 11, up from +11.7M bpd last week, which was already the highest national output in the world.

Note: U.S production y/y has increased by +2.4M bpd since Jan 2018 and fuelling market fears of a supply glut.

The EIA also said gas stockpiles climbed +7.5M barrels last week, easily beating market expectations for a +2.8Mbarrel gain. At +255.6M barrels, gas stocks are at their highest weekly level in two-years.

Along with the surge in U.S crude output, exports stateside are also rising, hitting a record +3.2M bpd by the end of 2018.

To stem this U.S supply glut, OPEC+ is leading the efforts to cut global supply and with that support crude oil prices.

In precious metals overnight, the markets focus was on palladium as it hit a new record high, driven by falling supplies and a growing demand for the auto catalyst metal, while gold prices stood firm on expectations that the Fed would pause further interest rate hikes.

Spot palladium is up +0.1% at +$1,360, after hitting an intraday record high at +$1,366.50. Spot gold is steady at +$1,293.36 per ounce, while U.S gold futures are firm at +$1,293 per ounce.

Note: Palladium has rallied +60% since mid-August.

3. Sovereign yields remain under pressure

Eurozone bond yields are a tad lower ahead of the U.S open, as dealers continue to assess the outlook for the U.K, and while the U.S shutdown fails to provide much direction.

Germany’s 10-year government Bund yield is -1.6 bps lower at +0.207% while other sovereign 10-year bond yields in the region have fallen around -2 bps.

An outlier is Italian BTP’s – the Italian five-year BTP continues to outperform following Italy’s successful 15-year bond sale, which prompted a follow-on rally in Italian government bonds. The five-year note fell -13.5 bps Wednesday, its biggest one-day fall in over a month.

Elsewhere, the yield on 10-year Treasuries fell -2 bps to +2.70%, while in the U.K, the 10-year Gilt yield has dipped -2 bps to +1.293%.

4. Sterling steady as it waits on PM May’s next move

After her narrow ‘no-confidence’ win Wednesday, PM May has been reaching out to all parties. However, both the Labour and the Lib-Dem’s both indicated that they would not meet unless PM May commits to removing the possibility of a “no-deal” outcome. E.U officials are said to be examining plans to delay Brexit until 2020.

Note: U.K PM May survives “no-confidence” vote in Parliament (as expected); Vote 325 for May and 306 against. Northern Ireland’s DUP voted in favour of May, as promised (10 votes).

GBP/USD (£1.2875) is trading steady and is expected to be ‘quiet’ for the remainder of the week as the chances of a “soft Brexit” have increased somewhat. Expect things to kick off again next Monday (Jan 21), when PM May is due to announce what she is likely to do next.

EUR/USD (€1.1398) appears to be locked in a €1.13-1.15 range for the time being and caught between the Fed’s recent ‘dovish’ rhetoric of reaffirmed patience and on concerns that the Eurozone might slip into a technical recession.

Risk aversion is helping the JPY, which is a tad firmer with USD/JPY lower by -0.3% at ¥108.75.

5. Eurozone Dec CPI falls below the ECB target

Eurostat data this morning showed that the euro area (19 members) annual inflation rate was +1.6% in December 2018, down from +1.9% in November. A year earlier, the rate was +1.4%.

European Union (28 members) annual inflation was +1.7% in December 2018, down from +2.0% in November. A year earlier, the rate was +1.7%.

Digging deeper, the lowest annual rates were registered in Greece and Portugal (both +0.6%) and Denmark (+0.7%). The highest annual rates were recorded in Estonia (+3.3%), Romania (+3.0%) and Hungary (+2.8%).

Note: Y/Y, annual inflation fell in twenty-two member states, remained stable in three and rose in three.

In December 2018, the highest contribution to the annual euro area inflation rate came from services (+0.58%), followed by energy (+0.53%), food, alcohol & tobacco (+0.34%) and non-energy industrial goods (+0.12%).

Notes/Observations

• Brexit politics direction of travel is unequivocally toward a soft Brexit: PM May reaches out to all parties following the narrow victory in the confidence vote; Labour and the LibDem's both indicated that they will not meet unless and until May commits to removing the possibility of a "no-deal" outcome
• Euro Zone Dec CPI confirms move back below the ECB target fr 1st time in 7 months
• US federal prosecutors said to be close to indicting Chinese tech firm Huawei for allegedly stealing trade secrets from US businesses. The move could exacerbate economic tensions between the US and China

Asia:

• US senators getting ready to introduce bill targeting Huawei and ZTE that would ban the sale of their products and components in the US

Europe:

• UK PM May survives no-confidence vote in Parliament. (as expected); Vote 325 for May and 306 against. Northern Ireland's DUP votes in favor of May, as promised (10 votes)
• Labour leader Corbyn: Government must removed 'no deal' Brexit prospect before talks can begin. Govt may have survived confidence vote but it's unable to govern; a new election is still the best option
• Scottish National Party (SNP) Deputy: Article 50 extension and a second referendum should be on the table in any talks
• PM May spokesperson: not taking 'no deal' option off the table despite Labour Leader Corbyn's request
• EU officials said to be examining plans to delay Brexit until 2020. Previous planning had centered on a three-month delay to Brexit from March 29 until the end of June. EU plans to delay Brexit until 2020 after Germany and France indicated their willingness to extend withdrawal negotiations because of Britain's political turmoil
• Over than 130 executives called on MPs to "not waste any more time" and abandon hopes of renegotiating an agreement with the European Union before Britain leaves on March 29th

Americas:

• Fed Beige Book: Economic activity expanded in most of the US, with 8 of 12 districts reporting modest to moderate growth . All districts noted tight labor markets
• Fed's Kashkari (dove, non-voter): Fed has less room to cut rates in a future downturn, but there are other tools
• Senate Finance Committee Chairman Grassley (R-IA): Think that Trump is leaning toward implementing auto tariffs

Macro

• (US) United States: The Fed's portfolio drain may have impacted and contributed to some recent market volatility, according to comments attributed to KC Fed hawk George. She said further that recent market volatility is an "attention grabber" that should prompt a pause in raising rates. She did indicate on Tuesday that it was a good time to pause and the Fed should be patient. George is a voter and has appeared more dovish of late.
• (UK) United Kingdom: The government survived the confidence motion yesterday in what largely became a non-event. Politically weakened as the Prime Minister is, she will now proceed with trying to find a Brexit solution capable of winning cross-party parliamentary support. It appears more likely that Brexit will be delayed beyond the official leave date of March 29.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.15% at 350.06, FTSE -0.45% at 6,831.75, DAX -0.49% at 10,878.19, CAC-40 -0.32% at 4,795.12, IBEX-35 =0.05% at 8,917.00, FTSE MIB -0.13% at 19,452.50, SMI +0.44% at 8,909.20, S&P 500 Futures -0.39%]
• Market Focal Points/Key Themes: European Indices trade mostly lower with the Dax underperforming on Chinese growth fears. Elsewhere in the UK the FTSE trades lower as PM May won a no confidence vote as expected as continued Brexit uncertainty weighs on sentiment. On a busier morning on the corporate front, shares of Societe General trades lower after announcing Q4 performance will be impacted by disposals and challenging environment in the global capital markets. On the earnings front Associated British Foods trades sharply higher as Retail sales came in ahead of views; Metro rises on prelim Q1 results; Experian also trades higher on a 9% rise in organic Rev. Meanwhile N Brown Group, Whitbread XLMedia, Charles Stanley are among the names trading lower on earnings and trading updates. Commerzbank trades lower in Germany after key regulators favour a merger with a European Entity for DeutscheBank rather then a German Bank; Alstom trades slightly lower on earnings and reports Siemens is against further concession towards EU commission on Alstom deal. Looking ahead notable earners include Banking names Morgan Stanley, Keycorp, BB&T, M&T Bank as well as PPG and Fastenal.

Equities

• Consumer discretionary: Associated British Foods [ABF.UK] +5.5% (earnings), GVC Holdings [GVC.UK] +1% (trading update), Just Eat [JE.UK] +2% (analyst action)
• Financials: Societe Generale [GLE.FR] -3.5%, BNP Paribas [BNP.FR] -2%, Credit Agricole [ACA.FR] -1.5% (SocGen profit warning), Experian [EXPN.UK] +2% (trading update), Commerzbank [CBK.DE] -3% (regulators reportedly support a European merger for Deutsche Bank)
• Industrials: Alstom [ALO.FR] +0.5% (earnings), Akzo Nobel [AKZA.NL] +0.5% (details on capital repayment)
• Technology: Sage Group [SGE.UK] +5.5% (earnings)

Speakers

• EU said to place a condition any Bexit delay (Article 50 extension) on an agreement being made between PM May & opposition leader Corbyn
• ECB Lautenschlager (Germany): Economy remains in the environment that ECB staff projections forecasted; nothing surprising about the drop in inflation. Reiterated that 1st potential ECB rate hike seen this year but will be data dependent
• Bank of England (BOE) Credit Conditions & Bank Liabilities Surveys: Sept-Nov mortgage demand declined, further decline was seen. Credit available to UK households declined and unsecured lending demand rose boosted by credit cards
• Italy League Party officials said to have met with leaders of the far-right Brothers of Italy party for recruitment into the Ruling coalition
• EU Brexit Chief Negotiator Barnier: Reiterated that the EU's Brexit deal was balanced, respected UK's red line. If UK red lines weare moved, the EU would move immediately
• First Minister of Scotland Sturgeon: presented her list of demands for cross party talks and began by noting PM May needed to extend Article 50 or consider a 2nd referendum
• Spain Foreign Min Borrell: Brexit impasse coul only be fixed with an extension of the date of the UK planned departure
• Poland Central Bank's Zyzynski: Favors a steady rate policy until 2022. Could not raise interest rates, must keep economy balanced
• German BDI Industry Association: Had to prepare for a hard Brexit; no-deal Brexit was not an option for companies in either EU or UK. Believed that a chaotic Brexit was dangerously close to happening. Saw 2019 German GDP growth of 1.0% at best if any major disruptions to trade between UK and EU
• Indonesia Central Bank Policy Statement noted that the decision to keep policy steady was consistent with efforts to reduce current account deficit and maintain the attractiveness for foreign investors. Policy mix to be strengthened to reduce C/A deficit to 2.5% this year. Reiterated to strengthen coordination with Govt to control the current account deficit. Reiterated stance to guard IDR currency (Rupiah) to be in-line with fundamentals and remain vigilant on factors that affect the currency. Capital inflows to support IDR currency (Rupiah); saw a stronger currency going forward. To ensure that inflation remained low and stable and saw inflation within target range during the year
• China Commerce Ministry (MOFCOM) spokesperson Gao: Confirms that Vice Premier Liu He to visit the US for trade talks between Jan 30-31st (in-line with speculation)

Currencies/Fixed Income

• GBP/USD was steady in the aftermath of PM May surviving another confidence vote and calling for cross-party talks on Brexit to find a solution to the current impasse. Overall dealers note that process has pivoted toward a softer Brexit which has aided the GBP currency in recent sessions. The 1.2800 level seen as support for the time being.
• EUR/USD appeared to be locked in a 1.13-1.15 range for the time being and caught between the Fed's recent rhetoric of reaffirmed patience and concerns that the Euro Zone might slip into a technical recession. Euro Zone Dec CPI confirmed the move back below the ECB target fr 1st time in 7 months. Pair at 1.1395 just ahead of the US morning.
• Risk aversion helping the JPY currency a tad firmer with USD/JPY lower by 0.3% at 108.75 area

Economic Data

• (NL) Netherlands Dec Unemployment Rate: 3.6% v 3.5% prior
• (ID) Indonesia Central Bank (BI) left the 7-Day Reverse Repo unchanged at 6.00%; as expected
• (AT) Austria Dec CPI M/M: 0.1% v 0.2% prior; Y/Y: 1.9% v 2.2% prior
• (HK) Hong Kong Dec Unemployment Rate: 2.8% 2.8%e (matched lowest level since Jan 1998)
• (IS) Iceland Dec International Reserves (ISK): 736B v 770B prior
• (IT) Italy Nov Total Trade Balance: €3.8B v €3.8B prior; Trade Balance EU: €0.5B v €0.8B prior
• (EU) Euro Zone Dec Final CPI Y/Y: 1.6% v 1.6%e; CPI Core Y/Y: 1.0% v 1.0%e; CPI M/M: % v 0.0%e ( Headline CPI back below the ECB target for 1st time in 7 months)
• (EU) Euro Zone Nov Construction Output M/M: -0.1% v -1.6% prior; Y/Y: 0.9% v 0.6% prior

Fixed Income Issuance

• (ES) Spain Debt Agency (Tesoro) sold total €B vs. €4.0-5.0B indicated range in 2021, 2023, 2024 and 2027 Bonds
• Sold €1.41B in 0.05% Oct 2021 SPGB; Avg yield: -0.047% v -0.039% prior, Bid-to-cover: 2.13x v 2.26x prior
• Sold €1.66B in 0.35% July 2023 SPGB; Avg yield: 0.289% v 0.329% prior; Bid-to-cover: 1.68x v 1.75x prior
• Sold €726M in 2.75% Oct 2024 bono; Avg Yield 0.565% v 1.731% prior; Bid-to-cover 2.34x v 1.84x prior
• Sold €811M in 1.5% Apr 2027 SPGB; Avg yield: 1.137% v 1.395% prior; Bid-to-cover: 2.07x v 1.78x prior

Looking Ahead

• OPEC Monthly Report
• (CO) Colombia Dec Consumer Confidence Index: No est v -13.5e v -19.6 prior
• 05:30 (BR) Brazil Nov Economic Activity Index (Monthly GDP) M/M: 0.2%e v 0.0% prior; Y/Y: 1.8%e v 3.0% prior
• 05:30 (UK) DMO to sell £2.5B in 1.0% Apr 2024 Gilts
• 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)
• 06:00 (DE) ECB's Lautenschlaeger (Germany) speaks in Dublin
• 06:00 (RO) Romania to sell RON500M in 12-month Bills
• 06:00 (RO) Romania to sell RON400M 5% 2029 Bonds
• 06:45 (US) Daily Libor Fixing
• 08:00 (RU) Russia Gold and Forex Reserve w/e Jan 11th: No est v $466.9B prior
• 08:00 (RU) Russia Q4 Preliminary Current Account Balance: No est v $27.7B prior
• 08:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: expected to leave Interest Rate unchanged at 6.75%
• 08:00 (UK) Baltic Dry Bulk Index
• 08:30 (US) Initial Jobless Claims: 220Ke v 216K prior; Continuing Claims: 1.73Me v 1.722M prior
• 08:30 (US) Jan Philadelphia Fed Business Outlook: 9.5e v 9.4 prior
• 08:30 (US) DELAYED: Dec Housing Starts due to govt shutdown
• 08:30 (US) DELAYED: Weekly USDA Net Export Sales data
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 10:45 (US) Fed's Quarles (hawk; FOMC voter) speaks at Insurance Industry Forum
• 11:30 (US) Treasury to sell 4-Week and 8-Week Bills
• 13:00 (US) Treasury to sell 10-Year TIPS

Eurozone CPI was finalized at 1.6% yoy in December 2018, sharply lower from 1.9% yoy in November. Headline CPI was just 0.2% higher than 1.4% yoy back in December 2017. Core CPI was finalized at 1.0% yoy , unchanged from prior month.

The highest contribution to the annual Eurozone inflation rate came from services (+0.58 percentage points, pp), followed by energy (+0.53 pp), food, alcohol & tobacco (+0.34 pp) and non-energy industrial goods (+0.12 pp).

Full release here.

Bullish sentiment dominated the single European currency against the Japanese Yen on Wednesday. As a result, the currency pair appreciated about 0.72% during yesterday's session.

However, after hitting a strong resistance level formed by the combination of the weekly and the monthly pivot points at 124.36, the exchange rate made a U-turn south and tested the lower boundary of an ascending trendline during the morning hours of today's trading session.

By and large, is like likely that the currency exchange rate continues its decline within this session and bears could pressure the EUR/JPY pair towards a swing low of 123.40

The Australian Dollar has revealed a new junior descending channel pattern against the US Dollar. The channel pattern has guided the currency pair towards a traditional monthly pivot point at 0.7154.

Technical indicators demonstrate that the AUD/USD exchange rate will depreciate today.

However, for this situation to happen, the currency exchange rate needs to surpassed the monthly S1 at 0.7145.

If the support level as mentioned above holds, bullish traders will likely try to push the price towards a resistance cluster at 0.7185 within this trading session

The USD/CAD currency pair has continued to trade sideways movement for the fifth consecutive trading session. However, the US Dollar slightly increased its trading range against the Canadian Dollar on Thursday.

It is likely that the Greenback will gain strength against the Loonie during the following trading session.

Nevertheless, it is expected that the currency exchange rate edges lower towards the 1.3250 mark today.

The combination of the 50-, 100-, and 200-hour SMAs at 1.3262 might provide support for the pair within this session.

Bearish momentum pressured the New Zealand Dollar versus the US Dollar on Wednesday. As a result, the Kiwi lost about 73 base points of its values during the previous trading session.

Today's session began with a decline, and by the middle of the Thursday's trading session, the currency pair was trading near the 0.6720 mark.

The potential target for the currency exchange rate during the next 24hrs will be at a swing low of 0.6672.

However, the pair could reversal from current price level and aim for a resistance of the weekly and the monthly PPs at 0.6796.

As Q4 earnings start to roll out, the best scenario is that companies acknowledge natural cyclical softening within the context of economic expansion and explain tailwinds in specific sectors or industries. Investors are likely to react positively. Should companies use expected volatility to dump all problems and provide gloomy outlooks, this earnings season will be difficult.

Companies will be cautious, but that doesn’t mean the end of the renascent equity rally. US homebuilder Lennar reported last week that it would not provide guidance for 2019, citing uncertainty. The honestly was embraced by the market and instead of falling rose over 8% that day. Apple and its supply chain have already taken a hit. When Apple officially cut guidance for iPhone production, stock prices of several suppliers and those valuations moved relatively little on the report. Companies involved in delivering chips to consumer electronics, cars, and communications equipment are trading at multiples of 10x this year’s earnings, indicating the market sees no growth onward.

While plenty of analysts forecast a 2019 recession, economic data so far is positive. Investors are concerned over trade tensions, pace of normalizations and softer growth (now driven by US government’s partial shutdown). But there is plenty to be optimistic about: strength of US growth and rising wages provide a solid backdrop for earnings. With many stocks trading below 10x 2019 earnings, and the S&P 500 averaging just over 14x, value investors have a wide selection of high-quality stocks.