Tradingview Weekly Market Wrap 6 January 2020

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Where ends patriotism and begins terrorism? This is the question people are forced to answer just 3 days after the New Years. We have all heard the famous saying “an eye for an eye” but how democratic is it? Two days ago we got the news that the US army killed in an airstrike attack one of the key figures from Iranian army. The reasoning was as simple as the previously mentioned saying: you kill one of ours we kill you. As a result, tensions in the region increased one more time: rocket fell near US embassy in Iraq – hours after funeral of top Iranian general Qassem Soleimani. After that, two Katyusha rockets have fallen in Iraq’s Balad air base, which houses US forces. According to representatives of the Iraqi army, there were no casualties or destruction. Separately, mortar has fallen in Baghdad’s Jadriya neighbourhood – with police sources telling Reuters that five people have been wounded. What is going to happen next? Another escalation but hopefully it will not start another war.

German Foreign Minister Heiko Maas said that he plans to start a dialogue with Iran in the coming days and to do everything possible to avoid further escalation of relations after the death in Baghdad because of an American attack.

However, we are here to talk about markets and how different events may affect them. First thing first, we find it important to say that despite geopolitical instability, 2020 starts with a merely good tone. The most important news were:

1) Trump’s announcement of a possible trade agreement with China on 15 January.

2) Better Macroeconomic Data: According to the U.S. Bureau of Labor Statistics Unemployment rates were lower in November than a year earlier in 223 of the 389 metropolitan areas, higher in 137 areas, and unchanged in 29 areas.

3) In the latest effort to boost growth, China’s central bank has pledged to push market-based reforms, aiming to significantly bring down real interest rate levels and cut social financing costs. China again reduced the reserve coefficient of banks, releasing approx. $ 115,000m for credit. The 50-basis-point cut will take effect on January 6, the PBoC said in a statement.

4) The year started with a new round of OPEC+ cuts, with the group cutting a further 500,000 bpd on top of the earlier agreed 1.2 million bpd. The price of the oil has been also supported by the news of a huge fall in US crude inventories in the last week of 2019 by some 7.8 million barrels.

In addition, the U.S. airstrike on Iranian military leader Qassim Suleimani has caused a jump in oil and gold prices. Longer-term Treasury yields and safe haven currencies also increased as investors began looking for protection. Besides that, the price of Kratos Defense (KTOS) shares rose by more than 10%. In case of a further aggravation of the situation, the stock can jump up to $25. Thus, it is time to look for weapons makers who saw their stocks surge as Trump moves closer to war with Iran.

 

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